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Democrats Praise Insurance Regulators' First Steps on Medical Loss Ratios

By Emily Ethridge, CQ Staff

August 18, 2010 -- Democratic lawmakers praised a blueprint approved by state regulators Tuesday outlining what activities insurers can count as medical care, calling it a victory for consumers, even as insurers said it would hamper efforts to improve quality.

The National Association of Insurance Commissioners (NAIC) reached a milestone Tuesday after months of debate by approving a detailed form which insurers will have to fill out to show they are spending enough of the premiums they collect on medical care for policyholders.

Approval of the proposal was part of a months-long effort by the NAIC, made up of state insurance regulators from all 50 states, to assist the Department of Health and Human Services in developing a regulation on medical loss ratios (MLRs).

Under the health care overhaul law (PL 111-148, PL 111-152), insurers in the individual and small-group market must spend 80 percent of their premium revenue on medical care and efforts to improve quality of care. Those in the large-group market must spend 85 percent of premium income on those purposes.

Consumer advocates say this requirement will force insurance companies to spend more on patient care, rather than on marketing and administrative costs.

Lawmakers applauded Tuesday's unanimous decision but said the proposal could still be improved.

"As a key author of the medical loss ratio provisions in health reform, I commend NAIC for holding insurance companies accountable, despite pressure from the health insurance industry," Sen. Al Franken, D-Minn., said in a statement Wednesday. "But the fight isn't over yet. We need to remain vigilant so that NAIC's final product and the final federal rules aren't weakened by the health insurance industry in the coming weeks and months."

Rep. David Wu, D-Ore., joined Franken in praising the NAIC, but said he believes "there is still room for improvement" and hopes for a "final, prudent decision that will ensure Americans are paying for benefits and not paperwork," his spokeswoman said.

The overhaul law is vague on what services count as medical care and quality activities, and the NAIC is tasked with defining the medical loss ratio along with other key provisions.

The group's decision could directly affect insurers' profits, and insurance companies have clashed with lawmakers for months on how various items should be classified. Insurers say an overly strict definition will prevent them from including items that demonstrably improve care and could harm competition and their ability to keep costs down.

"The current proposal could have the unintended consequence of turning back the clock on efforts to improve patient safety, enhance the quality of care and fight fraud," said America's Health Insurance Plans President (AHIP) Karen Ignani. "Preserving patients' access to high-quality health care services is essential if the key goals of health care reform are to be achieved."

The insurance company trade group said in a letter last week that NAIC should count activities such as fraud prevention and wellness incentives in the individual market as medical care and quality improvement costs.

Lawmakers and consumer advocacy groups say they are concerned that a loose definition of the medical loss ratio would result in premium dollars being spent on compensation for insurance company executives, not on patient care.

"For too long, health insurance company CEOs have been pocketing astronomical salaries all the while denying care and coming up with foolish reasons to kick people off their insurance policies," Sen. John D. Rockefeller IV, D-W.Va., said in a statement. "I hope as the NAIC continues to meet this week they will remember that the purpose of this law was to make sure Americans' health insurance premium dollars are spent on actual care—not obscene CEO salaries and industry profits."

After Tuesday's approval, the liberal group Health Care for America Now cheered the NAIC's decision.

"Today the NAIC took a step toward ending the health insurance companies' stranglehold on our health care," said the group's executive director, Ethan Rome. "The top state insurance regulators from across the nation voted to put patient care above insurance company profits."

Tuesday's vote was the first step in determining the medical loss ratio, and NAIC has not completed work on instructions for filling out the form. The final version will address contentious issues including the extent to which taxes should be excluded when counting premium revenues.

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