Friday, September 24, 2010

Update on Medical Loss Ratio Requirements

As you may have seen, the National Association of Insurance Commissioners (NAIC) released their draft medical loss ratio (MLR) regulation yesterday.  The draft regulation fleshes out the requirement that individual health insurance policies spend 80 percent of their premium dollars on medical claims, and group health insurance policies spend 85 percent.  Three key points to be aware of:

  • The draft regulations exempt most taxes paid by insurers from the formula use to calculate the MLR – a development consistent with the statute, but one that goes contrary to the stated wishes of some Democrats, who previously wrote NAIC offering a retrospective re-interpretation of this section of the law.
  • The regulations would define MLRs by state and type of insurance product being sold.  Thus a carrier with an MLR of 90% in one state and 75% in another would need to meet the new 80/85% standards in each state – rather than aggregating the effects nationwide.
  • NAIC did not make a determination about whether to allow a phase-in period for the requirements to take effect, leaving that decision to HHS officials.  This week Iowa wrote to HHS asking to delay implementation of the MLR requirements in that state, on the grounds that “without such a waiver provision…the federal standard will disrupt our individual health insurance market” because carriers may exit the state.  Iowa is the second state to make such an explicit request of HHS, following Maine’s earlier lead.

The draft regulation will be open for comment, and needs to be approved by other NAIC sub-committees, and eventually the full association itself.  Following that process – expected to be completed in October – HHS will “certify” the NAIC recommendations, as provided for in the statute.  A helpful article from this morning’s Wall Street Journal summarizing the state of play is available here.