By Jane Norman, CQ HealthBeat Associate Editor
November 22, 2010 -- The Department of Health and Human Services (HHS) issued its long-awaited regulations on medical payouts required under the health care law, a standard known as the medical loss ratio (MLR).
The most immediate impact for many Americans could be a rebate check when health insurance plans spend too much on items such as administrative expenses or salaries. But the HHS rule also makes allowances for certain plans that cannot immediately meet the new standards and sets up a transition process available to states worried about smaller plans in their markets that might be forced out of business.
President Obama has repeatedly promised that Americans will not lose the health care coverage they now have, and HHS officials said the new rule will ensure that remains true. Jay Angoff, director of the Office of Consumer Information and Insurance Oversight at HHS, said at a press briefing that "no one is going to lose their coverage, even if this coverage isn't the best."
HHS Secretary Kathleen Sebelius said that the new rules are an important way for the government to hold insurers accountable. As expected, the rule issued by HHS does not dramatically differ from recommendations made by the National Association of Insurance Commissioners (NAIC), a group of state regulators that met for months following enactment of the health care law.
The new standard will "guarantee that consumers get the most out of their premium dollars," Sebelius said. The MLR was viewed by Democrats who wrote the law as a tool to keep premiums low and insurers more accountable.
The MLR goes into effect in January 2011. Insurers now writing next year's plans have been asking HHS for guidance as soon as possible.
The law (PL 111-148, PL 111-152) requires that large-group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent can go to other items, such as administrative costs, advertising and profits. For small-group and individual plans, the ratio is 80 percent premiums and 20 percent other costs. If insurers fall short of the standards in 2011, they'll have to issue rebates for that amount in 2012.
HHS officials estimated that up to 9 million Americans will be eligible for rebates worth up to $1.4 billion beginning in 2012. Average per-person rebates "could total" $164 in the individual market, officials said. Insurers will have to pay the first round of rebates based on 2011 MLR data by August 2012.
The rule also allows states to request up to a three-year transition period to comply with the payout standard in the individual market. Officials said the rule does not make the same allowance for the small-group market. However, states are not barred from asking for a similar transition period for those plans.
At least four states—Maine, Iowa, Florida and South Carolina—and possibly more are expected to ask for transitions, said Jane Cline, the West Virginia insurance commissioner and president of the NAIC. Those requests may be for just the individual market or individual and small-group plans. "Individual commissioners will be making the determination of what to request of HHS," she said. Cline said her own state has insurance plans that would not now meet the new standard.
To qualify for a transition, a state will have to demonstrate that making insurers meet the minimum medical payout standard in the 80 percent market has a likelihood of "destabilizing" the individual market and would result in less consumer choice.
There are certain insurance plans that will have a hard time meeting the new standard because the benefits they offer are very minimal. Such plans are used by employers such as McDonald's, which has warned it might have to drop its insurance under the new standards. But according to HHS, data for those so-called "mini-med" plans and "expatriate" plans will not be included in the aggregate premium and expenditure data insurers will have to report. Insurers will be able to report their experience separately for those plans, Sebelius said.
Expatriate plans are those provided to Americans living overseas, while mini-med plans have a low level of annual dollar limits and premiums. Officials said the regulation will allow a "special methodology" for these plans to address their "unusual" expense and premium structure. "We will collect data for the first year on the mini-med plans and then make a determination about the applicability of the MLR across the board," she said. "There isn't a lot of data on this marketplace, and we know mini-meds vary dramatically."
In addition, the rule requires that insurers send consumers in such plans a notice that they are in a plan that provides less than full coverage.
RULE SPECIFIES WHAT COUNTS IN MLR
Consistent with another NAIC recommendation, the HHS regulation will allow insurers to deduct only those state and federal taxes that apply to health insurance coverage from an insurer's premium revenue when calculating its MLR, officials said. Taxes on investment income and capital gains will not be deducted from premium revenue.
Again consistent with the NAIC recommendation, the regulation will allow insurers to add to their MLR a "credibility adjustment" when the MLR for a market within a state is based on fewer than 75,000 people enrolled for the entire calendar year. This is because it is difficult to predict what will happen in a market with a small number of insured people. Insurers with fewer than 1,000 people enrolled for an entire calendar year will not be required to provide rebates.
The rule also specifies a set of "quality improving activities" that would count toward the 80 percent or 85 percent standard. They "must be grounded in evidence-based activities, take into account the specific needs of patients and be designed to increase the likelihood of desired health outcomes in ways that can be objectively measured," said a fact sheet on the rule. Insurers will not have to immediately show an activity improves quality but will have to eventually produce "measurable" results.
Plans new to a market may be able to delay reporting their MLR until the following year, again consistent with an NAIC recommendation. This will encourage new plans to enter markets without fear of having to immediately issue a rebate, officials said.
Sebelius said the standards could produce lower costs, "and that's what we call real results for real Americans."
There are civil monetary penalties if an insurer fails to comply with the law's reporting and rebate requirements. The penalty for each violation is $100 per entity, per day, per individual affected by the violation.