Inside Health Policy
The health insurance industry welcomed a comissioners’ subgroup for proposing HHS consult with individual states to determine if insurers should be given extra time to meet the health reform law’s requirement that a certain percentage of premiums collected to towards actual medical costs — known as the medical loss ratio requirement (MLR).
A National Association of Insurance Commissioners subgroup on Monday gave preliminary approval to a resolution recommending that the HHS secretary consult with each state’s insurance commissioner to determine if she should adjust the MLR in that state during a transition period in order to prevent market destabilization. The health reform law allows the HHS secretary to provide insurers in given states additional flexibility to meet the requirement to avoid destabilizing the market.
“We are pleased that the NAIC recognizes the potential for disruption in the individual market and is working to establish a smooth transition,”America’s Health Insurance Plans (AHIP) spokesman Robert Zirkelbach said. “We hope that the NAIC will continue to work to ensure that the transition proposal provides clear guidance in order to maintain predictability and stability for those who rely on the individual market for their health care coverage.”
The health reform law requires individual plans maintain an 80 percent MLR, and if that is not achieved plans must provide rebates to consumers. However, the law also states that the HHS secretary may adjust the MLR for a certain state — thus allowing a transition period — if necessary to maintain the individual marketplace.
The insurance industry had pressured NAIC to expedite its recommendation on the transition period, noting any plan that believes it cannot survive in the transition period needs to inform its policyholders 180 days before it exits the market. Because the MLR provision — which requires any plan that does not hit the mandated level to provide rebates to consumers — goes into effect Jan. 1, 2011, plans must make decisions as soon as possible.
The NAIC working group’s chair, Steve Ostlund (who is an actuary with the Alabama Department of Insurance), described the working group’s decision-making process in a June 14 progress letter to NAIC President Jane Cline and Health Committee Chair Sandy Praeger. He said that the subgroup had an extensive discussion on the transition issue, and reminded Cline that federal law requires a 180-day notice if insurers decide to cancel a policy. In some states, he wrote, the experience and rating of individual policies would suggest cancellation if the MLR rebate provisions were implemented without adjustment.
“We decided that the companies need transition consideration,” Ostlund wrote, so as not to destabilize the market. The group also determined that such consideration only applied to situations where companies have been legally operating under a lifetime loss ration requirement substantially lower than the new MLR requirements.
Finally, he said, “We explicitly excluded from consideration issues relating to contract reserves, nor the possibility that newer plans have not yet matured into their lifetime loss ration on an aggregate.”
The resolution also suggests several characteristics be considered when determining whether the 80 percent figure should be adjusted during the transition period.
- State law requiring minimum loss ratio.
- Actual loss ratios for each individual carrier in the state.
- The number of carriers in the state that offer individual medical polices.
- An evaluation of the vulnerability of the individual medical market to destabilization.
Following a brief discussion over the resolution in a Monday teleconference, the regulators agreed to add an additional bullet point clarifying that states should get input from insurance experts and consumer advocates as well. The group also said that while they will not be offering a set formula on how to design a transition period – they may offer suggestions at a later date.
The regulators did offer one example: In a state that has an MLR of 55 percent, and actual loss between 55 percent and 70 percent and four insurers in the state, the secretary might require the rebate calculations to be based on 65 percent in 2011, 70 percent in 2012 and 75 percent in 2013. — Amy Lotven (firstname.lastname@example.org)