By John Reichard, CQ HealthBeat Editor
February 18, 2011 – Judging from the small number of states that have filed requests for waivers from the controversial medical loss ratio regulation issued under the health care law, one might think the rule won't disrupt insurance markets as much as some analysts have predicted.
But it would be a mistake to draw that conclusion simply based on the number of state waiver filings, a number of analysts say. And, they say, the true impact of the rule may not be clear until after the 2012 elections.
The regulation, which took effect in January, requires that insurers in the individual and small group markets pay out at least 80 percent of their premium revenues for medical care this year. In the case of large groups, the standard is 85 percent. Insurers that miss the mark must pay rebates to consumers starting in 2012.
But in issuing the rule, Department of Health and Human Services officials acknowledged that some insurers in the individual market may need more time to get their "MLRs" in compliance. And the department is accepting waiver requests from insurance commissioners who fear the standard will be too disruptive in their states.
This week, Kentucky joined Maine, Nevada, and New Hampshire in seeking a waiver from the regulation. "The proposed adjustment would create a three-year transition period during which the MLR standard remains at Kentucky's present 65 percent for 2011 and increases by 5 percent each year reaching 80 percent in 2014," Kentucky Insurance Commissioner Sharon P. Clark said in a Feb. 16 letter to HHS Secretary Kathleen Sebelius.
Families USA Executive Director Ron Pollack said that the relatively small number of waiver requests is a good sign. "It's too early to say how many states might ultimately request waivers," said Pollack, whose group has been fighting for a health overhaul for many years. "But the fact that there's been a relatively small number of states that have made these requests so far shows that the ultimate standard that is put in place should not be disruptive and that it will work in a practical way."
However, insurance industry consultant Robert Laszewski said "it's way too soon" to know how much market disruption there will be because of the rule. "I think it's very possible that we will have some carriers leaving the market as the year goes on," he said. The Jan. 1 start of the rule did not leave insurers much time to analyze whether they could stay viable under the standards of the regulation, he said.
But Laszewski added that ultimately the market impact of the rule won't be know until the U.S. Supreme Court rules on the constitutionality of the law and until after the 2012 elections. Only then will it be clear whether the rule is a matter of settled law, he said. Laszewski predicted that plans hurting on the bottom line from the rule will hold on and pay rebates if they have too in order to learn what the high court and voters in the 2012 election have to say before making a decision to quit a particular state's market.
Robert Zirkelbach, press secretary for America's Health Insurance Plans, also cautioned against drawing conclusions about market impact based on the small number of state waiver requests. He said that there is no deadline for state waiver filings and noted that insurance commissioners themselves have warned about the potential for significant market disruption from the MLR rule.
A managed care company executive who requested anonymity said insurers "are fighting battles on so many fronts." As a result, they are still sorting out how well they can operate under the rule. They also have many continuing questions about how to classify expenses under the rule, the executive said.
Timothy Jost, a Washington and Lee University law professor, predicted that there will be a number of additional states filing waiver applications. Jost noted that filing a waiver is "a pretty rigorous process." Only Maine so far has actually completed the waiver application process to the satisfaction of HHS, Jost added, with the other three facing HHS requests for additional data.
Jost also avoided drawing any conclusions about the market impact of the rule based on the number of state waiver filings. But Jost, a supporter of the health law, said he sees other indications that the rule won't be as disruptive as some analysts have predicted. Jost says he follows the insurance industry trade press and the stories he sees suggest that insurers are taking steps to adapt to the rule. And large publicly traded insurers continue to report good profits and to draw favorable reviews from Wall Street analysts, he says.
