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Don't Cave on Medical Payout Rule, Rockefeller Exhorts NAIC

By John Reichard, CQ HealthBeat Editor

October 14, 2010 -- Sen. John D. Rockefeller IV issued a statement Thursday urging the National Association of Insurance Commissioners (NAIC) to "stand strong" against industry efforts he said would deny rebates to consumers in some states under the health care overhaul law.

"Now is not the time to stand down," the West Virginia Democrat said. "I urge you to reject the health care industry's eleventh-hour lobbying campaign."

At issue is a regulation the Department of Health and Human Services (HHS) will issue in coming weeks that requires insurers to pay rebates if they spend less than 80 percent of premium dollars on medical care for policies sold to individuals and small employers. For larger groups, rebates are required if medical payouts fall below 85 percent.

NAIC will soon make recommendations on this so-called medical loss ratio (MLR) rule to HHS, which the department is by and large expected to follow.

Rockefeller said NAIC needs to withstand a last-minute lobbying blitz and stick to the position reached by one of its committees that medical payouts need to be calculated at the state rather than the national level to check compliance with the payout minimums.

Aetna, Cigna, Humana, UnitedHealth and Wellpoint "are now mounting a furious eleventh-hour lobbying effort" to allow companies to add up the medical payouts in all the states they do business in to come up with a single national figure, Rockefeller said.

In a letter to the NAIC, Rockefeller said that "allowing insurers to aggregate their medical loss ratio at a national level deprives the consumers of individual states" of important consumer protections. In states where medical payouts do not meet the minimums, consumers "would have no right to rebates, as long as the health insurance company's overall national average remained above the law's new requirements," Rockefeller complained.

Separately, NAIC sent a letter to HHS Secretary Kathleen Sebelius on Oct. 13 that did not address that particular issue but that did emphasize the need to be flexible in administering the MLR rule.

NAIC said that HHS must be flexible about deadlines. The letter cautioned that "improper or overly strident application of the MLR and rebate program could threaten the solvency of insurers or significantly reduce competition in some insurance markets."

The standards take effect on Jan. 1, 2011, with rebates required to be issued in 2012 to the extent an insurer's 2011 payouts fall short of the standards. So if an insurer in the small-group market takes in $100 million in premiums and pays out $78 million for medical care, it would have to pay rebates totaling $2 million.

But the NAIC letter said that such consumer protections aren't helpful if the MLR rule threatens the solvency of a company. "State regulators understand that the threshold consumer protection is ensuring a health insurance company is solvent," the letter said. Companies in a number of markets will need more time to fully meet the MLR, NAIC said.

States such as Maine, Iowa and South Carolina have asked for longer phase-in periods. America's Health Insurance Plans sent a letter of its own to NAIC on Oct. 13 hammering hard at the need for a phase-in schedule and saying that NAIC should make specific recommendations to HHS on such a schedule.

NAIC is also recommending to HHS that "expatriate and international polices" sold to people living abroad who sometimes return to the United States for brief periods should be exempted from the MLR standard. That is because of heavy administrative expenses involved in servicing such policies, NAIC says.

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