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Sebelius Launches Implementation of Medical Loss Ratio Regs

By Jane Norman, CQ HealthBeat Associate Editor

April 12, 2010 -- Health and Human Services Secretary Kathleen Sebelius took the first steps Monday toward implementing the new health care law's provisions dealing with medical loss ratios — how much insurers must spend on paying out medical claims, as opposed to other expenses such as administration, ads or salaries.

Sebelius also made it clear that she wants the regulations on medical loss ratios up and running sooner than later. In a letter, she asked members of the National Association of Insurance Commissioners (NAIC) to send her their guidance by June 1 on how to put the new law in place.

The target date in the law (PL 111-148) for such advice was Dec. 31, but Sebelius noted in her letter that the medical loss ratio provisions are effective for plan years beginning six months after the law's enactment. HHS wants to publish regulations "as soon as possible" to allow enough time for insurers to incorporate the changes, she said.

Under the health care law, insurance plans must specify what percent of premium revenue is spent annually on reimbursement for clinical services, activities that improve health care quality and all other non-claims costs. Enrollees will receive rebates if the minimum is less than 85 percent. Reports will be made available on the Internet.

"One of the central goals in health insurance reform is to make premiums affordable," Jeanne Lambrew, head of the Health and Human Services Department's Office of Health Reform, said in a conference call with reporters. "To begin to tackle affordability, the administration today is taking its first steps toward oversight of health insurers' administrative overhead, growth rates and premium increases."

Lambrew said NAIC agrees with the department that the medical loss ratio regulations need to be established quickly. Some states already conduct medical loss ratio reviews and have their own definitions, and the department is looking for input about what's common practice, Lambrew said.

Sebelius said in her letter that the "strong partnership" between the department and NAIC has been of great benefit and the federal government will continue to reach out to states as implementation of the new law continues. Thus, the Health and Human Services Department (HHS) is looking for input from NAIC on how to define what's included in medical loss ratios and standardized calculation methodologies, ensuring they account for smaller insurance plans, different types of plans and newer plans, she said.

In addition, HHS published requests in the Federal Register for public comment within 30 days on the definition of medical loss ratio, as well as public comment on separate rate review provisions.

On rate review, HHS in conjunction with states will set up a process to annually review insurance company rate increases and determine whether they are unreasonable. Additionally, insurers have to give HHS and the relevant state a justification for an unreasonable premium increase prior to the implementation of the increase, and prominently post this information on their Internet Web sites.

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