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Insurers 'Alarmed' over Lawmakers' Letter on Medical Loss Ratios

By John Reichard, CQ HealthBeat Editor

August 12, 2010 -- Insurers expressed dismay Thursday over a letter by key congressional committee chairmen weighing in on a health overhaul law provision dealing with "medical loss ratios," saying that millions of consumers could be harmed by the way the letter says the ratios should be calculated.

The ratios, or "MLRs," are the percentage of premium revenues that insurers pay out for medical care.

The issue deals with an arcane aspect of the law pertaining to MLRs, but the bottom line is clear; insurers fear the Obama administration is going to box them into a position where they will be forced to issue rebate checks to consumers for not providing sufficient levels of medical care for the premium dollars they get from employers and individual consumers.

That would hand President Obama a victory going into the fall elections in that he could say the overhaul law will force insurers to issue consumers refunds after years of overcharging them for insurance.

These suspicions among insurers are heightened by the announcement Thursday that Obama plans to address a meeting in Seattle next Tuesday by the National Association of Insurance Commissioners. The NAIC will soon issue recommendations to the department of Health and Human Services on how to calculate the MLRs.

The letter, coupled with the president's visit to NAIC, is "brilliant timing," said a managed care industry consultant who requested anonymity in order to speak more freely.

The law specifies a percentage of the premium dollar that insurers must pay out for health care and what percentage they can use for administrative expenses including profits. In the case of insurers in the small group market, the MLR is 80 percent. In case of large groups, it's 85 percent.

In the August 10 letter to HHS Secretary Kathleen Sebelius, lawmakers including Senate Finance Committee Chairman Max Baucus, D-Mont., said that "we are writing to clarify legislative intent as it pertains to the exclusion of federal taxes" from premium revenue calculations used to determine a plan's MLR. To the extent a plan misses the mark—say by spending 83 percent of premiums on medical care rather than 85 percent—it must issue consumers a rebate check, in this example two percent of the premium charges.

The law says that in calculating premium revenues federal and state taxes and licensing or regulatory fees should be excluded. But the letter says that federal taxes and fees in this context refers only to those established under the health care overhaul law. "Federal income taxes or payroll taxes were not intended to be excluded," the letter says.

In addition to Baucus, the letter was signed by House Ways and Means Committee Chairman Sander M. Levin, D-Mich., House Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif., House Education and Labor Committee Chairman George Miller, D-Calif., Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin, D-Iowa, and Senate Banking Committee Chairman Christopher J. Dodd.

Insurers said lawmakers are now rewriting the intent of the MLR provision after the overhaul has become law.

"The statute is crystal clear that federal taxes are to be exempted from the MLR calculation," said Michael Tuffin, executive vice president with America's Health Insurance Plans. "Rewriting the statute five months after enactment will inevitably result in coverage disruptions for families and small employers," Tuffin said. Disruptions could mean "changes in benefits, changes in cost sharing or if a plan is unable to meet this new requirement they may not be able to offer a particular product in a particular market."

Tuffin declined to comment on whether the industry will sue to block adoption of the lawmakers' interpretation in the MLR rule when it is issued. But he said "this is an exceptionally serious issue that will impact millions of policy holders and we're going to do everything we can to get clarity around the intent of the statute and the impact of changing the statute after the fact."

Insurers are "alarmed, surprised, off balanced, and extremely concerned about the financial impact," the industry consultant said. It is "very likely that many plans won't be able to meet the 80 and 85 percent standard," he added. "They're pulling out all the stops here." The industry "expects to get a legal opinion tomorrow and has people on the ground in Seattle" talking to attendees at the NAIC meeting. Insurers also are contacting state insurance departments, the consultant said.

"No one is talking about litigation." But if the industry can't prevail in Congress or in HHS rulemaking, that's the remaining weapon against the interpretation, he said

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