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Insurers Expected to Win Relief from Health Law Rule Due to Rollout Glitches

By John Reichard, CQ HealthBeat Editor

March 14, 2014 -- The administration is expected to ease a key spending rule in the health care overhaul as part of efforts to prevent insurers from jacking up premiums in the online insurance marketplaces next year.

The Centers for Medicare and Medicaid Services (CMS) signaled its intent to adjust the so-called medical loss ratio, or MLR, requirement in a section of a 335-page rule published this week. Called "Benefit and Payment Parameters for 2015," the rule appeared in the March 11 Federal Register. The agency first signaled it might take such a step last fall.

Adjusting the rules was one of the ways the agency said it might give insurers more money to compensate for last fall's trouble launch of the online health care marketplaces.

"We intend to propose several amendments to the MLR regulations," the agency stated in a section listing 13 topics for future rulemaking. The MLR establishes how much health plans must spend on patient care and limits the extent to which insurers can add their administrative costs to the premiums they charge.

Health plans must pay rebates to consumers if their costs exceed 15 percent of premium dollars collected from larger employers and 20 percent to smaller ones. Analysts say the rules suppress industry profits by forcing companies to either keep premiums down or pay rebates.

CMS aggressively defended the standards during contentious rulemaking that led to their issuance. But now, following the botched rollout of the federal insurance marketplace, the agency is bending because of higher costs plans have incurred to get people enrolled.

"We intend to propose standardized methodologies to take into account the special circumstances of issuers associated with the initial open enrollment and other changes to the market in 2014, including incurred costs due to technical problems during the launch of the state and federal exchanges," the rule stated.

"We also intend to propose amendments that would improve the consistency of MLR and rebate calculations in states that require the individual and small group markets to be merged."

Further, CMS said it intended to propose certain adjustments in calculating the costs of adopting the expensive new "ICD-10" medical diagnostic coding system in calculating expenses relating to the MLR. Specifically, it said it would lengthen the period insurers have to include the costs in their MLR calculations—language suggesting plans could stretch out their reporting of such administrative expenses. And CMS said it would clarify "the rules for distribution of de minimus rebates."

It's unclear how big an impact the MLR adjustments would have on rebates or premium charges. Robert Zirkelbach, spokesman for America's Health Insurance Plans, said his group does not yet have a formal position on how the MLR should be adjusted.

But he added, "health plans have made considerable investments in time, resources, and manpower to help minimize disruption for consumers caused by the technical problems with Health plans should not be penalized for the extra work they did to help consumers through the enrollment process."

CMS has been moving in various ways to limit the political hit defenders of the health law (PL 111-148, PL 111-152) could take in the November elections. Recent actions included delaying a mandate employers cover workers, extending the period certain consumers can keep plans that don't comply with the law's minimum coverage requirements and ruling that subsidies to help some people pay out of pocket health expenses won't be subject to sequestration cuts.

An insurance industry source who requested anonymity said that MLR changes could help insurers selling plans on the federal exchange by increasing the allowable administrative costs. That will depend on what the administration defines as allowable and how much additional premium income a plan can retain, the source added.

"A larger retention might help by decreasing the 2015 premium increases. It is no secret that the administration does not want to deal with an 'October Surprise' a month before the mid-term elections of large Medicare Advantage premium increases and significant premium increases in the exchanges," the industry source said.

The effect also could vary for plans sold on exchanges run by states, instead of the federal marketplace, including California, New York, Oregon, Maryland, Kentucky, and Washington. "How would the feds audit incurred costs?" the source asked. "If Oregon had more problems than Washington, does that mean that health plans in Oregon get a larger cost deduction? We would have to see a rule to determine what is allowable."

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