Monday, November 22, 2010

Summary of Medical Loss Ratio Regulations

A brief synopsis of some of the high points of the interim final regulation on medical loss ratios (MLRs) released this morning, much of which closely resembles recommendations made by the National Association of Insurance Commissioners (NAIC) late last month:

  • The regulation adopts the NAIC recommendations regarding aggregation, requiring carriers to meet the MLR standards on a state-by-state basis.  See the discussion on pages 30-41 and pages 215-16 of the regulation.
  • The regulation adopts the NAIC recommendations regarding which taxes should be excluded from the MLR calculation.  See the discussion on pages 75-80.
  • The regulation also adopts the NAIC recommendations regarding credibility, which relates to actuarial adjustments provided to smaller carriers (because of the greater uncertainty associated with covering a smaller risk pool).  See the discussion on pages 90-100.
  • The regulation follows the NAIC recommendation that expatriate plans for employees working outside the country should be considered separately, due to the higher administrative costs associated with plans with significant overseas operations.  As a result, the regulation separates MLR reporting for expatriate plans, and includes an adjustment factor for 2011 to account for expatriate plans’ higher administrative costs. (The adjustment factor will be revisited for 2012 and succeeding years.)  See the discussion on pages 42-44.
  • With regard to limited benefit (or “mini-med” plans), the regulation applies an adjustment factor for 2011, with the MLR calculations for limited benefit plans to be revisited in 2012 and succeeding years.  The adjustment comes in response to news reports that McDonald’s and other companies might drop their limited benefit plans – which carry higher-than-average administrative costs – as their existing plans likely would not be able to comply with the new MLR requirements absent an adjustment.  See the discussion on pages 44-48.
  • The regulation sets out a process – along with five criteria – for HHS to consider requests to adjust or otherwise waive the MLR standards in states where the individual insurance market would be “destabilized” as a result of the 80 percent statutory MLR requirement.  However, it does not indicate the status or disposition of adjustment requests already pending, including those made by insurance commissioners in Maine and Iowa.  See the discussion on pages 116-133.

The draft regulations also include estimates of the amount of rebates to be paid out under the regulations; from pages 193-94 of the rule:

Over the 2011-2013 period, the Department’s mid-range estimate is that rebates will total $1.8 billion in the individual market, $770 million in the small group market, and $440 million in the large group market. Additionally, the Department estimates that 9.9 million enrollees in the individual market, 2.3 million enrollees in the small group market, and 2.7 million enrollees in the large group market will receive rebates over the 2011-2013 period under the mid-range estimate. Summing across all three markets, the mid-range estimate is a total of $3.0 billion in rebates over the 2011-2013 period. The low rebate estimate across all three markets for 2011-2013 is $2.0 billion, and the high rebate estimate is $4.9 billion.

The Administration’s fact sheets regarding the new regulation have been advertising the amount and number of the proposed MLR rebates to consumers.  Some may question why the Administration is trumpeting the size of the potential rebates to consumers as a “benefit” provided by the law.  Is the intent of the MLR provisions to ensure that carriers spend their money on medical claims, or to hand out rebate checks to as many people as possible in order to increase political support for an unpopular health care law?