CCIIO Issues Guidance On Medical Loss Ratio Rules

The Center for Consumer Information and Insurance Oversight (CCIIO) has issued guidance in the form of an informational bulletin on the medical loss ratio (MLR) provision of the Patient Protection and Affordable Care Act (ACA). Sect. 2718 of the Public Health Service Act (PHSA), as added by the ACA, requires health insurance issuers to submit a MLR report to the Department of Health and Human Services (HHS) and requires them to issue a rebate to enrollees if the issuer’s MLR is less than the applicable percentage established in PHSA Sec. 2718(b).

The CCIIO bulletin provides MLR guidance on the following topics:

• applicability of the MLR to certain types of plans,
• employer groups of one,
• counting employees for determining market size,
• individual association policies,
• offering policyholders a “premium holiday,”
• reinsurance and reporting,
• Exchange user fees,
• states with a higher MLR standard,
• “mini-med” experience and application of the adjustment, and
• form of rebate.

Applicability to certain types of plans. The bulletin clarifies that self-funded plans are not subject to the MLR reporting and rebate requirements. The MLR requirements apply to health insurance issuers offering group or individual health insurance coverage. A self-funded plan (sometimes referred to as a self-insured plan) is not a health insurance issuer, as defined by PHSA Sec. 2791(b)(2), and thus is not subject to the MLR requirements. It does not matter if the self-funded plan is subject to ERISA or if it is a non-ERISA plan.

The bulletin also indicates that even if a state law defines certain coverage as blanket coverage, an issuer offering such blanket coverage is subject to the MLR requirements if the coverage meets the definition of group or individual health insurance coverage under PHSA Sec. 2791.

Employer groups of one. Where a sole proprietor and/or a spouse-employee are the only enrolled employees, the health plan would not be considered to be a group health plan. Thus its experience would be aggregated with the issuer’s individual market experience and not with the issuer’s small group market experience. However, if a sole proprietor enrolls a non-spouse employee, the experience of that plan is part of the small group market for MLR purposes. Even if the only enrollee is an employee who is not an owner or spouse, the plan is part of the small group market for MLR purposes.

Counting employees for determining market size. The bulletin indicates that at the time of sale, issuers should make every attempt to accurately count the number of employees employed by the group policyholder so as to accurately categorize the group as belonging in the small or large group market.

If the policyholder does not make the issuer’s policy available in all of the states in which it has employees, the issuer may not be able to count all of the employees. For example, an employer may be based in New York with 150 employees in New Yorkand 20 employees in Maryland. The Maryland employees may have health insurance with one issuer while the New Yorkemployees are covered by a different and separate (affiliated or unaffiliated) issuer. The issuer of the Marylandpolicy may not know the total number of the policyholder’s employees and may categorize the group in its systems to be in the small group market for purposes of the policy it issues, the rates it charges and so forth.

In such a situation, the issuer may determine the group size for MLR reporting purposes and the minimum MLR standard based on the information available to the issuer. Unless the issuer has information which puts the issuer on notice that the total number of employees would cause the plan to be a large group for MLR purposes, the issuer may determine the number of employees solely based on the number of employees in Maryland and it may report the experience of the policy in the small group market or large group market based on the number of the plan’s Maryland employees.

Exchange user fees. Exchange user fees should be included in the licensing and regulatory fees that are subtracted from premium in the MLR calculations. The regulation regarding reporting of fees requires issuers to report as an adjustment to premium “statutory assessments to defray operating expenses of any state or federal department.”

Form of rebate. An issuer may provide rebates in the form of a premium credit, lump-sum check or, if the enrollee paid the premium using a credit or debit card, by returning the entire rebate to the account used to pay the premium, according to the bulletin. CMS believes that an alternative, such as a debit or credit card, is a reasonable alternative as long as it is as convenient to use as a check and meets all of the conditions described below.

An issuer may provide rebates in the form of a pre-paid debit card (presumably by arrangement with a bank or other financial institution) provided all of the following conditions are met:

• The applicable policyholder’s or subscriber’s name must be on the card in order to ensure that the rebate reaches the intended policyholder or subscriber and is not stolen or diverted to a creditor or other third party;
• The card must not have an expiration date;
• The policyholder or subscriber must not incur any fees in association with the use or non-use of the card. If the institution that issues the card does not have any locations within a reasonable distance to the policyholder’s or subscriber’s mailing address and the policyholder or subscriber incurs a fee from another financial institution in order to cash the card, any such fees imposed by the other financial institution must be reimbursed by the issuing institution;
• At the policyholder’s or subscriber’s request, the entire balance on the card must be convertible to cash;
• The policyholder or subscriber must be able to contact the issuer or the issuing institution in order to opt out of receiving the rebate in the form of a prepaid debit card and request a paper check. Such check must be mailed within ten calendar days of the request;
• The policyholder or subscriber must be able to contact the issuing institution during normal business hours to obtain the cash value, or balance, on the card; and
• The policyholder or subscriber must be provided with an easy-to-understand notice of their rights and an explanation of the terms of the card at the time the cards are mailed.

For more information, visit http://cciio.cms.gov/resources/files/mlr-qna-04202012.pdf.

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