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Insurers Scramble to Persuade Regulators to Class Certain Outlays as 'Medical'

By John Reichard, CQ HealthBeat Editor

May 7, 2010 -- The more that current outlays by health insurers fall into the "medical" category, the easier it will be for them to meet new minimums in the health care overhaul dictating how much of every premium dollar must go for medical care and limiting how much can go for profit and administrative expenses.

Insurers are racing to make the case that things like spending on health information technology and reducing certain types of medical care that isn't necessary falls into the category of "improving the quality of care" and so would qualify as "medical."
Consumer activists say, however, that activities described by insurers as "medical management" can lead to the unwarranted denial of care. Classifying it as medical keeps insurers from having to increase their payouts for actual health care services, they assert.

The overhaul law requires that 85 percent of premiums in the large group market be spent on medical care. The minimum medical loss ratio, or "MLR," is 80 percent in the individual, non-group market—it's harder to reach and so generally involves higher marketing and other administrative spending.

The issue is reaching a critical point with the National Association of Insurance Commissioners due to make recommendations to federal officials by June 1 on how various types of insurer outlays and programs should be classified in determining these "medical loss ratios." In addition, HHS has set a May 14 deadline for comments by insurers and others on how various types of spending should be classified.

An internal memo by an official with the America's Health Insurance Plans (AHIP) says that various types of insurance company activities could be in jeopardy if regulators aren't convinced that they should be designated as medical on the grounds that they improve quality of care.

"As we approach the May 14 deadline for submitting comments, it is critically important for you to explain what you are doing to improve quality of care, reduce readmissions, eliminate unnecessary procedures, improve safety and reduce fraud and abuse," says the memo to AHIP member companies from AHIP Senior Vice President Scott Styles.

"We urge you to explain how these activities meet the statutory definition of "activities that improve health care quality" for purposes of calculating MLRs, "because they improve patient health outcomes and reduce unnecessary and potentially harmful care."

The memo further advises that "you . . . describe your innovative case management, disease management, and care coordination initiatives including: health risk assessments, including maternity and neonatal risk assessment," and programs to promote "wellness" and "nurse advice lines to help patients get the care they need while reducing the likelihood of adverse health problems."

However, consumer activists say that some of these programs involve denial of care that harms patients and that it's perverse to count them as medical care.

In a recent post on the website of Consumer, the group's research director, Judy Dugan, took exception to a recent earnings report by United HealthCare that credited good results in part to "expense management."

"'Strong expense management' refers to the pencil-pushers in the back room whose job is to delay and deny the care your doctor prescribes," Dugan blogged. "Delay is almost as profitable as denial. Every day a dollar is not spent is a day it earns interest for the company. Yet this is one of the functions that insurance companies are now transferring into the 'medical care' column."

"By moving administrative jobs into the medical care category, United HealthCare will be able to meet health reform requirements for medical loss ratios of up to 85% without sweating, and still make just as much profit," Dugan added. "A lot of what insurance companies can get away with will depend on how new regulations to govern the health care reforms are written — and who gets to write them."

But AHIP spokesman Robert Zirkelbach said that insurers seek through their management programs to determine appropriate levels of care, which he said means correcting underuse of care in some instances and overuse in others that could be dangerous. He said for example that overuse of medical imaging is hazardous because of exposure to radiation that can be unsafe.

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