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Rockefeller Study Touts Benefits of Medical Loss Ratio Regulation

By Jane Norman, CQ HealthBeat Associate Editor

May 24, 2011 — A provision on medical payouts in the health care overhaul is proving somewhat problematic given that it's prompted a parade of state officials to ask for waivers, arguing that their insurance markets would crumble if the new standards were imposed right away. That has led to intense Republican criticism that the law is unworkable.

But Sen. John D. Rockefeller IV remains one of the fiercest defenders of the section of the law (PL 111-148, PL 111-152) that requires health insurance companies to meet new medical loss ratios (MLRs) as of Jan. 1. And the West Virginia Democrat issued a study emphasizing how much the provision will save consumers.

If the rebate provisions in a new medical payout regulation had been in effect in 2010, enrollees would have been paid more than $2 billion in rebates by health insurance companies, according to the study by the Democratic staff of the Senate Committee on Commerce, Science and Transportation.

The study was based on financial information filed by insurers for the first time with the National Association of Insurance Commissioners (NAIC).

In addition, the study said those rebates would have been reduced by $1.1 billion if agent and broker commissions were excluded from the calculations used to determine medical payouts.
The rule was published late last year. It requires insurers to spend a certain minimal amount of premium dollars on medical care or improvements in quality—80 percent for individual policies and 85 percent for big groups. If the insurance companies do not do so, they must issue rebate checks to consumers the next year.

Broker fees are not included in that 80 or 85 percent, and MLR rules stipulate they must count as administrative expenses. That creates an incentive for insurers to reduce payments to brokers.
The Democrats' study did not take into account changes insurers could make this year to comply with the MLR rule and avoid having to pay rebates to consumers.

The NAIC has been sympathetic to the agents and brokers who wield influence in their home towns, and that influence has also been felt by lawmakers. A bipartisan measure to exclude broker fees from the MLR administrative costs (HR 1206) has 75 cosponsors in the House, including 14 Democrats. But the bill's future is uncertain because of opposition from Senate Democrats such as Rockefeller.

So far, 12 states—Delaware, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nevada, New Hampshire and North Dakota—and Guam have asked for waivers. Three of them—Maine, Nevada and New Hampshire—have won some adjustments to the rules from the Department of Health and Human Services. A handful of other states are considering applying for waivers.

Maine's rebates were estimated at $6.8 million in the study, while New Hampshire's were $8.5 million and Nevada's were $43 million.

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