Updates on Medical Loss Ratio Requirements
As you may have seen, the National Association of Insurance Commissioners (NAIC) endorsed its recommendations regarding the new medical loss ratio (MLR) requirements included in the health care law. The new statutory requirements, essentially a form of price control, force carriers to spend at least 80 percent of premiums (85 percent in the large group market) on medical claims. Stories from the AP, Politico, the New York Times, the Wall Street Journal, and The Hill report on yesterday’s developments. Several points of note:
- There were generally three issues viewed as outstanding going into the plenary NAIC meeting. The first two involved aggregation (i.e., whether carriers could meet a single MLR nationally, or would have to meet the new requirements in each individual state) and whether insurance broker commissions would be classified as administrative expenses, as they were in the draft. Amendments were not voted on regarding these issues, meaning the draft requirements remain unchanged – carriers will NOT be able to aggregate nationally, instead meeting the requirements state-by-state, and broker commissions will remain classified as an administrative expense. NAIC did however vote to approve a group to work with HHS on broker commissions.
- The third issue related to credibility, which relates to actuarial adjustments provided to smaller carriers (because of the greater uncertainty associated with covering a smaller risk pool). An amendment allowing for more flexibility on the credibility adjustments was defeated.
- The taxation issue remained unchanged – carriers will be able to exclude most taxes paid from the MLR calculations. This finding is generally consistent with the text of the statute, despite a letter sent this summer by the Democratic Chairmen of the relevant Congressional Committees attempting to retroactively reinterpret the plain text of what Congress passed into law.
- In terms of timing and further disposition, NAIC said they would present their recommendations to HHS next week, at which point the Administration will begin the process to “certify” the NAIC proposal. The Administration will also have to consider state requests for waivers from the MLR thresholds – it has not previously indicated how it will proceed on this front. Already three states have requested waivers from the new requirements, arguing that their immediate application will destabilize state insurance markets; additional states are expected to submit their own waiver requests in the coming weeks.
One final note: Former NAIC Chair Sandy Praeger – who called the new requirements “pretty stringent” – said that as a result of the regulations, “There will be some companies that I think will decide, they have a very small book of business in a state and they’ll decide maybe it’s not worthwhile to stay in the state.” In other words, the new requirements will cause individuals to lose their current coverage.