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State Insurance Commissioners Suggest Phase-in for Medical Loss Ratios

By Jane Norman, CQ HealthBeat Associate Editor

September 22, 2010 -- Two states—Maine and Iowa—have asked the Obama administration for more time in implementing a key provision in the health care law that spells out how much health insurers must spend on medical care and quality improvements, state insurance commissioners said after a White House meeting with the president on Wednesday.

A third state, Florida, is gathering additional concrete information and evidence to submit to the administration to bolster its case.

Leaders of the National Association of Insurance Commissioners (NAIC) said at a news briefing that President Obama told them during the meeting that he wants the federal government to be "thoughtful" and "realistic" as the difficult work of the health law's implementation goes on.

The commissioners said their concern is that small companies in the individual market, especially in smaller and more rural states, may founder if they must too quickly meet regulations dealing with what are known as medical loss ratios, or MLRs.

The NAIC is playing a major role in implementation of the law because its members make recommendations to the administration on the MLR and other provisions in the law. The group hit a milestone in August when it approved the detailed "blanks" form on the MLR that insurers will have to complete (See related story, CQ HealthBeat, Aug. 17, 2010). The commissioners had to agree on the criteria they would list on the form to show the government that insurers are spending enough of the premiums they collect on medical care for policyholders. The agreement followed months of debate over developing the regulation, and the MLR regulations could have a direct impact on insurer profits.

The law requires 85 percent of insurer premiums to be spent on medical care and quality improvements for large insurers, and 80 percent for small group and individual plans. Consumer advocates and Democrats in Congress are keeping a close eye to make sure insurers don't game the process of how those outlays are calculated or the time frame in which they must be completed.

Iowa Insurance Commissioner Susan E. Voss said she sent a waiver letter to the Department of Health and Human Services (HHS) on Tuesday asking that the MLR be phased in through 2014 in her state, where there is a dominant health insurer and a small cluster of other providers in the individual market. Without more time for small companies to meet the standard, "it's going to be like 1-800-Blue Cross Blue Shield in Iowa," Voss said.

Florida Insurance Commissioner Kevin McCarty said he appreciated the president's words because "we can't put this all into place immediately" without potentially disrupting the market. "If our goal is to minimize disruption before guaranteed issue in 2014, then a way to do that is to do some kind of phase-in," he said, referring to the point in 2014 when health insurers cannot deny applicants if they have pre-existing conditions.

Administration officials "don't like the word phase-in" and want concrete evidence of what disruption in the marketplace would be, McCarty said. He said he had a conversation with Jay Angoff, head of the Office of Consumer Information and Insurance Oversight, about Florida's concerns.

The hourlong White House meeting included commissioners from 32 states, two territories and the District of Columbia. HHS Secretary Kathleen Sebelius and Labor Secretary Hilda L. Solis were in attendance, and the president arrived about halfway through, commissioners said.

Voss said she felt administration officials heard the commissioners' message about the phase-in. "I got a sense they were taking notes," she said. "I think there's going to be continued open discussion." She said there's been no determination yet on possible waivers to allow phase-ins and that it's not clear how many other states might attempt the same. Sebelius would make the ultimate decision on whether or how a phase-in would work.

Kansas Insurance Commissioner Sandy Praeger said commissioners encouraged the administration to "look at any flexibility they have" in phasing in the medical loss ratios, since the law doesn't allow the states to implement phase-in periods on their own. Jane L. Cline, president of the NAIC and West Virginia insurance commissioner, said that "at the end of the day, we want to make sure consumers have an opportunity to purchase affordable health insurance."

Insurers who don't meet the ratios will have to issue rebates, but the rebates were not an item of discussion, the commissioners said.

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