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Word of 'Major' Announcement from HHS on Monday Stirs MLR Speculation

By Jane Norman and Rebecca Adams, CQ HealthBeat Associate Editors

November 19, 2010 -- Months of meetings, conference calls, lobbying, letter-writing and jawboning will culminate on Monday in what's widely expected to be the unveiling of government regulations on medical payouts for insurers under the health care law.

Health and Human Services (HHS) Secretary Kathleen Sebelius is scheduled to make a "major announcement" about the law early Monday at the Kaiser Family Foundation.

HHS officials would not disclose the subject of the press briefing and question-and-answer session. But a key regulation on medical loss ratios (MLRs) is about to be issued by the White House Office of Management and Budget, and likely would not be disclosed without a news conference, lobbyists and other observers said.

The MLR regulations to be issued will be among the most significant for insurers following the enactment of the health care law and could rock the industry. HHS has been under pressure from members of Congress on how the final rule should be written, and some insurers are hoping for a one-year delay in implementation for the individual and small group markets.

Insurers and some state insurance commissioners say it will be so difficult for certain plans in those markets to meet the new standards they may have to go out of business. There's also a question of whether adjustments should be made to the standard by HHS to accommodate insurance plans in particular states.

The MLR goes into effect in January 2011 and insurers now writing their plans for next year have been asking for guidance from HHS as soon as possible. The law (PL 111-148, PL 111-152) requires that large group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent can go to other items, such as administrative costs, advertising and profits. For small group and individual plans, it's 80 percent premiums and 20 percent other costs.

If insurers fall short of the standards in 2011 they'll have to issue rebates for that amount in 2012. HHS, though, will have to address how those rebates are paid and to whom—to individual enrollees or the plan as a whole.

Consumer advocates are keeping a close eye on how HHS moves. Timothy Jost is a law professor at Washington and Lee University who also served as a consumer representative to the National Association of Insurance Commissioners (NAIC), a group of state regulators charged with making recommendations on the MLR to the government. Jost and other consumer advocates have written to Sebelius saying the NAIC recommendations should be accepted without significant changes. "I don't think it'll vary much from the NAIC recommendation," Jost said in an interview.

Democratic advocates of tough standards for insurers were pleased with the NAIC work. However, America's Health Insurance Plans, which represents the industry, said the standards could force some insurers out of business.

Jost said the only major issue on which HHS may make changes is in connection with so-called "mini med" plans that have a very limited set of benefits with tight annual limits on what they pay. They charge very low premiums and allow workers at least some level of care. Steve Larsen, director of the Office of Oversight in the Office of Consumer Information and Oversight at HHS, has said that the MLR rule will include a "special methodology" that takes the mini-meds' circumstances into account.

Also expected to be addressed in the rule is a decision on how insurers' taxes are treated for the purposes of calculating the MLR. The law says taxes can be subtracted from premium revenues for the purposes of calculating the MLR but not which of the various federal taxes insurers pay.

Jost said all six Democratic committee chairmen who wrote the law recently wrote a letter saying their intention was to include only taxes stemming from the law, such as the tax on "Cadillac" health insurance plans.

HHS may also make a decision on whether or not agent and broker commissions should be counted as part of overall administrative costs. The NAIC appointed a working group to look at the issue and said it is very concerned that agents and brokers' roles be preserved.

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