HHS will use the Hierarchical Condition Category (HCC) classification system as a basis for the HHS risk adjustment model. This model utilizes diagnoses from all physician and hospital encounters, and profiles beneficiary medical problems with diagnostic categories (HCCs) that are not mutually exclusive. HCC classification provides a diagnostic framework for developing a risk adjustment model to predict medical spending and plan accordingly.

The concurrent risk adjustment model, if implemented, will use diagnoses in the current year to predict expenditures for that same year. Importantly, HHS plans to select a different set of HCCs for the Federal risk adjustment methodology than those used in Medicare to reflect the differences in population.

HCC was originally developed for CMS to do risk adjustment for Medicare Advantage and Part D prescription drug plans. The model will have to be adapted for the Affordable Care Act’s (ACA’s) risk adjustment due to the presence of the private insurance market.

On May 11, 2012, the United States Department of Health and Human Services (HHS) issued a final rule that revises previous medical loss ratio (MLR) rules to establish consumer notification requirements with which insurers must comply when meeting applicable MLR requirements. In a previous December, 2011 final rule governing other aspects of the MLR amendments, HHS had required notification only when insurers did not satisfy their MLR requirements for a year. The final rule issued in May of 2012 requires notice when the MLR requirements are met, as well. Separate notice instructions issued by HHS provide guidance to insurers regarding the structure, content, and timing of the notices, which must be sent by August 1 during the year following the plan year for which the MLR is calculated.

The final rule notes that greater information transparency and “competition gains” that accompany transparency outweigh the burden on insurers of having to notify the public, regarding not only whether the MLR has not been satisfied, but also whether an issuer has satisfied its MLR requirements. Insurers had opposed the change because of both the additional burdens imposed and because of the fact that consumers, in receiving the notice, would assume that they were owed a rebate when, in fact, they were not.

Under the final rule, 45 C.F.R. §158.251, insurers in both the individual and group insurance markets will be expected to send a standard notice when their MLR requirements are met. The new regulation applies only to the 2011 MLR reporting year. The new standard notice governing when the MLR has been met reads as follows:

Medical Loss Ratio Information—The Affordable Care Act requires health insurers in the individual and small group markets to spend at least 80 percent of the premiums they receive on health care services and activities to improve health care quality (in the large group market, this amount is 85 percent). This is referred to as the Medical Loss Ratio (MLR) rule or the 80/20 rule. If a health insurer does not spend at least 80 percent of the premiums it receives on health care services and activities to improve health care quality, the insurer must rebate the difference.

A health insurer’s Medical Loss Ratio is determined separately for each State’s individual, small group and large group markets in which the health insurer offers health insurance. In some States, health insurers must meet a higher or lower Medical Loss Ratio. No later than August 1, 2012, health insurers must send any rebates due for 2011 and information to employers and individuals regarding any rebates due for 2011.

You are receiving this notice because your health insurer had a Medical Loss Ratio for 2011 that met or exceeded the required Medical Loss Ratio. For more information on Medical Loss Ratio and your health insurer’s Medical Loss Ratio, visit www.HealthCare.gov.

The Kaiser Family Foundation has estimated that consumers will receive $1.3 billion in rebates in August 2012 as a result of insurers’ failure to satisfy MLR requirements applicable to the group and individual market.^[1] The Foundation further estimates that the MLR rebates will vary significantly by state, with as many as 96 percent of all consumers in the individual insurance market expected to receive rebates, depending on the state.

The ACA requires both individual and small group plans to meet the MLR requirements by spending at least 80 percent of premiums on medical claims or quality improvements.  Large plans are required to spend at least 85 percent.  Beginning in August of 2012, insurers must refund the difference to consumers.

The goal of the notice is to educate consumers regarding the MLR measures and to help consumers know that the majority of premium payments go towards health care, as opposed to advertising, executive bonuses, or administrative overhead costs.

HHS said the rule is not expected to have an economic impact of more than $100 million a year.

Families USA and Small Business Majority recently commissioned The Lewin Group to develop estimates of the number of small businesses that are eligible for this new tax break in tax year 2011 and how many workers could potentially benefit as a result. The Lewin Group used their widely respected Health Benefits Simulation Model for these estimates.  The analysis found that more than 3.2 million small businesses, employing 19.3 million workers across the nation, will be eligible for this tax credit when they file their 2011 taxes. In total, these small businesses are eligible for more than $15.4 billion in credits for the 2011 tax year alone, an average of $800 per employee.

Amongst other topics, the FAQs address whether a health plan can define mental health coverage as solely consisting of inpatient care benefits. The Department of Labor said that plans are not permitted to define mental health coverage as such if they provide benefits under one of the following six classifications of benefits that are subject to the law:

• inpatient, in-network;
• inpatient, out-of-network;
• outpatient, in-network;
• outpatient, out-of-network;
• emergency care; and
• prescription drugs.

Other topics include oversight of Mental Health Parity and Addiction Equity Act (MHPAEA) implementation; the law’s interaction with state mandates; which plans are exempt from MHPAEA; and what the Department of Labor, the Treasury Department, and the Department of Health and Human Services are doing to promote compliance.