By Joe Touschner
Even with all the ink, airtime, and pixels used in debating and discussing the Affordable Care Act over the last year, many of its provisions–including some very important ones–remain obscure. HHS today put forward regulations implementing one of those seemingly obscure, but actually quite vital parts of the law. The new regulations give shape to the requirement that insurers spend a certain percentage of premium revenues on health care for their enrollees–the so-called Medical Loss Ratio (MLR).
It’s often observed that health insurance companies make money by denying care–the less they spend on health care for their enrollees, the more they can keep for profit. This leads to some counterproductive incentives–insurers end up competing on which ones can most effectively minimize claims payouts rather than which provide the best value to their enrollees.
The Medical Loss Ratio provision is designed to change that incentive. Insurers will be required to spend a certain minimum percentage of their premium revenues on health services and quality improvement activities–80% of such revenues for insurers in the individual and small group markets and 85% in the large group market. If health care spending does not reach those levels, insurers will be required to pay back a portion of enrollees’ premiums until they do–minimizing claims payouts will no longer be a path to higher profitability for insurers. The point of the provision, though, is not to generate rebates for consumers. Instead, it aims to change the way insurers do business–it encourages them to compete on quality and price rather than on limiting health care expenditures.
Today’s regulations spell out how this will work in much more detail–in fact, 300 pages worth of detail. The regulations heavily rely on the recommendations of the National Association of Insurance Commissioners–and as Sabrina Corlette reported last month, those recommendations represent a big win for consumers. As we pore through the lengthy rulemaking, a few highlights stand out:
- MLR will begin to be measured in 2011 and any rebates due to consumers will begin to be paid in August 2012.
- States can request an adjustment to the 80% individual market MLR standard, though not the 80% small group standard nor the 85% large group standard. HHS will make adjustments for states that can show the 80% standard would lead to destabilization of the individual market. HHS officials noted that four states had already requested an adjustment–Georgia, Iowa, Maine, and South Carolina.
- The smallest insurer plans (those with fewer than 1,000 enrollees) will be exempt from the provision. Plans with fewer than 75,000 enrollees and new plans will have adjustments made to their MLR calculations.
- So-called “mini-med plans“, those that offer very limited benefits in exchange for lower premiums, will also receive special adjustments to their MLR calculations. To receive such an adjustment, though, they will have to provide extra information to HHS on their expenses and profitability. They will also have to provide prominent notice to consumers of their benefit limits.
Overall, the MLR standard is a key provision of health reform for transforming the private insurance market. The fact that HHS followed NAIC’s thoughtfully considered recommendations is a great sign. My colleagues and I will have more to say about the MLR and its impact on children and families in the coming weeks.