Editor’s Comment: Medical Loss Ratio and Rebates in Private Health Insurance

Posted on August 25, 2010 | Comment (1)
Filed under Editor's Comment, Health Insurance

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A key issue for insurers, businesses and consumers in health reform is working its way through the regulatory process. Beginning January 1, 2011, insurers will be required to spend a minimum percentage of insurance premiums on medical expenses, as opposed to administrative and marketing costs or profits. Insurers that fail to meet these minimum percentages, called medical loss ratios, will be required to rebate the difference in premiums. Group policies will be required to spend 85 percent on medical expenses and individual policies must spend 80 percent on medical expenses.

Last week, the National Association of Insurance Commissioners (NAIC) released the form that insurance companies will be required to use to report their medical loss ratios. The NAIC is expected to release additional documents in the coming weeks that provide information on how the forms should be completed, including key definitions on what activities performed by insures can actually be included as medical expenses. The association representing the health insurance industry, the Association of America’s Health Plans (AHIP) issued a letter last week expressing concerns that the NAIC has excluded certain costs. AHIP praised the openness of the NAIC process, but expressed concerns that NAIC will not allow anti-fraud and abuse activities, the costs of transitioning to a new coding system (ICD-10), utilization review activities, and the cost of a new wellness program in the individual market to be included as medical expenses.

Based on the content of the form released last week, it appears that NAIC will allow insurers to include quality improvement activities as medical expenses. It is expected that those activities will be defined in the upcoming release of additional documents.

Comment (1)

Bob Mason says:

August 31, 2010 at 3:42 pm

In the struggle to make health reform work, insurance companies present themselves as advocates for patients, as corporate entities working tirelessly to improve patient health. Unfortunately, their are many people in more credible institutions — for example many member of the National Association of Insurance Commissioners (NAIC) – who accept the insurers framing of themselves this way.

The provisions of the ACA regarding employer wellness program are open to abuse and misuse by employers and insurers who wish to show how concerned they are with employee/client health, but in fact would rather spend money on public relations than solid medicine.

CMS releases final rule on MLR requirements

May 12, 2012

The Centers for Medicare & Medicaid Services (CMS), a department within the U.S. Department of Health and Human Services (HHS), released final rules on Friday May 11th requiring insurers to notify subscribers when the medical loss ratio (MLR) provision of the Affordable Care Act (ACA) is met or exceeded for spending on medical claims or quality improvements. The December 2011 interim final rule and final rule on MLR only required that notices be sent to policyholders when insurers did not meet the MLR requirements. 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.

CMS releases bulletin providing MLR guidance

April 25, 2012

The Center for Consumer Information and Insurance Oversight (CCIIO), a division of the Centers for Medicare and Medicaid Services (CMS) recently released a bulletin providing medical loss ratio (MLR) guidance. Section 2718 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act (ACA), requires health insurance issuers to submit a MLR report to the Secretary. The PHS Act also requires issuers to provide a rebate to enrollees if the issuer’s MLR is less than the applicable percentage established in the PHS Act. The CCIIO bulletin covers the following topics:

Applicability of the Medical Loss Ratio to Certain Types of Plans
Employer Groups of One
Counting Employees for Determining Market Size
Individual Association Policies
Offering Policyholders a “Premium Holiday”
Reinsurance and Reporting
Exchange User Fees
States With a Higher Medical Loss Ratio Standard
“Mini-Med” Experience – Application of the Adjustment
Form of Rebate

CMS issued a final rule implementing MLR requirements and an interim final rule implementing MLR rebate requirements in December 2011.

OPM releases FEHB final regulation

April 2, 2012

Today the U.S. Office of Personnel Management (OPM) issued a final regulation amending the Federal Employees Health Benefits (FEHB) regulations and also the Federal Employees Health Benefits Acquisition Regulation (FEHBAR). This final regulation makes minor changes to an interim final regulation published June 29, 2011. The rule replaces the procedure by which premiums for community rated FEHB carriers are compared with the rates charged to a carrier’s similarly sized subscriber groups (SSSGs). The new procedure utilizes a medical loss ratio (MLR) threshold, analogous to that defined in both the Affordable Care Act (ACA), and in Department of Health and Human Services (HHS) regulations and replaces the outdated SSSG methodology with a more modern and transparent calculation while still ensuring that the FEHB Program is receiving a fair rate. This will result in a more streamlined process for plans and increased competition and plan choice for enrollees. The new process will apply to all community rated plans, except those required by their state to use traditional community rating (TCR). This new process will be phased in over two years, with optional participation for non-TCR plans in the first year.

CMS releases final rule on student health insurance coverage

March 16, 2012

Today, the Centers for Medicare & Medicaid Services issued a final rule on student health insurance coverage. This issuance updates the proposed rule released in February 2011. The final rule establishes requirements for student health insurance coverage under the Public Health Service (PHS) Act and the Affordable Care Act (ACA). The final rule defines student health insurance coverage, specifying that certain PHS Act requirements do not apply to this type of individual health insurance coverage. The final rule extends all of the protections provided to enrollees in individual market plans with several adjustments, outlined in the final rule...

HHS releases fact sheet regarding MLR waiver requests

February 17, 2012

The Obama administration denied Wisconsin's request for a waiver from the health law's medical loss ratio, but partially approved North Carolina's. These two decisions conclude the review the Department of Health and Human Service (HHS) has conducted of the 17 states that have requested a waiver from the law's requirement that individual market health plans spend at least 80 percent of premiums on medical care or give customers rebates. In total, HHS has rejected 10 requests (North Dakota, Delaware, Texas, Kansas, Oklahoma, Florida, Indiana, Louisiana, Michigan and Wisconsin) and approved modified applications from seven states (Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia and North Carolina). Wisconsin wanted a lower ratio of...

HHS issues MLR interim final rule

December 2, 2011

The U.S. Department of Health and Human Services (HHS) has issued an interim final rule (IFR), with public comment, on the medical loss ratio (MLR) requirement under the Affordable Care Act (ACA). Beginning in 2012, the ACA requires that health insurers spend at least 80% (in some cases 85%) of premiums on health care services, or be required to pay rebates to plan members. HHS issued both the rule itself as well as a separate IFR on the rebate requirements, each allowing for public comment. For more information on medical loss ratios, click here. An update to the previous brief is pending.

KFF analysis reports on MLR insurance rebates

April 27, 2012

A new analysis from the Kaiser Family Foundation reports that consumers and businesses are expected to receive an estimated $1.3 billion by August 2012 in rebates from insurers who exceeded Affordable Care Act (ACA) limits on administrative expenses and profits. The rebates include...

Commonwealth Fund issue brief estimates impact of the MLR rule

April 6, 2012

One of the most visible consumer protections in the Affordable Care Act (ACA) is the requirement that health insurers pay out at least 80 percent to 85 percent of premium dollars for medical care expenses. Insurers that pay out less than this minimum “medical loss ratio” (MLR) must rebate the difference to their policyholders, starting in 2011. Using insurers’ MLR data from 2010, the Commonwealth Fund recently released an issue brief estimates the rebates expected in each state if the new rules had been in effect a year earlier. Nationally, consumers would have received almost $2 billion of rebates if the new MLR rules had been in effect in 2010. Almost $1 billion would be in the individual market, where rebates would go to 5.3 million people nationally. Another $1 billion would go to policies covering about 10 million people in the small- and large-group markets.

OPM releases FEHB final regulation

April 2, 2012

Update: Medical Loss Ratio and Rebates in Private Health Insurance

November 23, 2010

This is an updated version of a brief originally published on August 25, 2010. This brief is current as of November 22, 2010. A medical loss ratio (MLR) is the proportion of premium dollars that an insurer spends on health care services relative to health insurance premium paid by subscribers. Prior to the enactment of the health reform law, the federal government required Medicare supplemental insurance (or Medigap policies) to meet minimum federal loss ratio requirements, but did not establish federal standards to define how insurers should categorize losses, nor did those requirements apply to other types of private insurance policies.