Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Hospitals: Hold Health Insurers to 'Clear' Definitions on Medical Loss Ratios

By Jane Norman, CQ HealthBeat Associate Editor

May 14, 2010 -- Only insurer activities that clearly pay for health care services or improved quality should be included when new federal regulations are developed on how much insurers must spend on medical care, the American Hospital Association said in a letter Friday to the Department of Health and Human Services.

"Health insurers, by definition, are not providers of health care services, nor are they licensed to deliver care," said the hospital group. "Insurers should not be permitted to determine without clear definition and guidance what services are defined as clinical or what activities will improve the quality of health care for an enrollee."

The health care law (PL 111-148, PL 111-152) sets new standards on medical loss ratios. That means that 85 percent of insurance company spending in the large group market will have to go toward patient care and quality improvements. The minimum is 80 percent in the small group market.

The ratios go into effect in 2011 and are regarded by Democrats as a key mechanism in the new law to dampen premium increases because health insurers will be forced to spend more on patient care and less on administration, marketing or salaries. Insurers, however, say the regulations can't be so strict that they curtail efforts to improve care.

Worries have cropped up among health care advocates because language in the new law is vague on how medical costs are defined. Some lawmakers such as Sen. John D. Rockefeller IV, D-W.Va., have warned that insurers already are trying to game the system by reclassifying administrative costs as medical.

The National Association of Insurance Commissioners is developing recommendations for HHS Secretary Kathleen Sebelius on what should be included in the medical loss ratio percentages. But AHA issued strong cautions in its letter to Sebelius.

Only payments to licensed professionals and entities for health care services should be classified as health care services, costs counted toward improving quality should meet specific criteria and loss adjustment activities should be counted as administrative costs, said AHA.

The regulations "must clearly define which activities do and do not improve health care quality and restrict the ability of health insurers to subjectively make such a determination," said the hospital group.

An analysis should be used to distinguish between an activity that's designed to limit services and one that's meant to improve health, AHA said. Additionally, activities that improve quality should not include loss adjustment expenses, generally connected with claim investigation, litigation or appeals, the AHA said.

Publication Details