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Health Officials Deny Wisconsin Medical Loss Ratio Waiver Request, Give North Carolina Partial Reprieve

By Rebecca Adams, CQ HealthBeat Associate Editor

February 16, 2012 -- Federal health officials recently denied Wisconsin's request for a waiver from a health care law requirement that insurers spend 80 percent of premium dollars on benefits. They required North Carolina insurers to meet that threshold beginning this year, but said that those who paid out at least 75 percent of premiums last year won't be penalized.

The insurance rule requiring insurers to pay out 80 percent of premiums, known as the medical loss ratio provision, were part of the 2010 health care law (PL 111-148, PL 111-152). So far, 17 states and Guam have requested temporary waivers from the rules for their insurers. One of those requests, for Maine, was approved as requested. Six states won a partial reprieve and requests from 10 states were denied. Federal officials decided that Guam's insurance carriers are so small that they don't have to submit data showing whether they comply.

Insurers will have to pay rebates to consumers this summer if they didn't pay out 80 percent of premiums last year, unless they are in a state that received an adjustment to the rules.

Steven B. Larsen, the director of the federal Center for Consumer Information and Insurance Oversight that oversees the rules, said on a call with reporters that Wisconsin officials had not proven their case that the health insurance market would be destabilized if the rules went into effect. The state had asked that insurers have a 71 percent threshold in 2011, 74 percent in 2012 and 77 percent in 2013. Larsen said that Wisconsin is "not a concentrated market but a competitive market," with 18 different carriers. Many of the insurers already either pay out at least 80 percent of premiums to consumers or are changing their practices so that they will soon. Wisconsin officials had said that six insurers would not have met the standard in 2010.

The federal health care law is a politicized issue in Wisconsin, where Gov. Scott Walker has said he will not implement the overhaul. Wisconsin officials did not immediately respond to requests for comment on the HHS decision.

Larsen said that the climate for consumers in North Carolina was a "very different market" that is dominated by BlueCross BlueShield of North Carolina, which has more than 80 percent of the business in the state. A letter to Commissioner Wayne Goodwin said that about half of the 14 carriers in the state's individual market that are subject to the rules did pay out at least 80 percent of their premiums in claims in 2010. But five companies left the market or stopped issuing new policies. Larsen told reporters that because the market is so concentrated and some insurers had already stopped offering new policies, federal officials were concerned that more insurers in that state might follow suit and leave consumers with few insurance choices.

The North Carolina Department of Insurance asked to change the medical loss ratio standard to 72 percent in 2011, 74 percent in 2012 and 76 percent in 2013. Department spokeswoman Kerry Hall called the decision to implement a 75 percent standard in 2011 and an 80 percent starting in 2012 a sensible one.

"The purpose in requesting the medical loss ratio adjustment was to prevent a destabilization of North Carolina's individual health insurance market," Hall said in an email. "We're pleased that the federal government saw merit in our analysis and request, and agreed that a short term adjustment was necessary. This decision allows us to keep a balance. It helps North Carolina maintain stability and consumer choice in the individual health market, while still providing rebates for many policyholders and holding insurers accountable. Furthermore, the announcement underscores the value and necessity of state-based insurance regulation."

Larsen also told reporters that the agency is proposing that consumers get a notice if their insurer will have to issue a rebate to them.

"Starting in August 2012, consumers will find out from insurers what value they're receiving for their premium dollars," Larsen said.

The National Association of Insurance Commissioners had estimated in a study that rebates nationwide could top $1 billion, but those projections are not currently up-to-date.

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