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Understanding MLR Waiver Requests

Margaret Dick Tocknell, for HealthLeaders Media, July 27, 2011

Since January health insurers have been required to meet certain medical loss ratio targets.

The MLR, mandated by the Affordable Care Act, requires insurance companies to spend no more than 15% to 20% on administrative expenses such as executive salaries, overhead, and marketing, and the rest must be spent on patient care and/or quality improvement.

That means payers must spend 80% to 85% of premiums collected in the individual and small group markets on direct patient care and efforts to improve care quality.

And here's the kicker: Health plans that don't meet the MLR must provide a rebate to their customers. We're talking some big collective bucks. The Department of Health and Human Services estimates that 9 million members could be eligible to share rebates worth up to $1.4 billion. That's money health plans aren't anxious to part with so they have appealed to their state departments of insurance to request state waivers to delay implementation of the MLR requirement.

So far 12 states – Kentucky, Maine, Nevada, New Hampshire, Delaware, Florida, Georgia, Indiana, Iowa, Kansas, Louisiana and North Dakota  –  have filed waiver requests with HHS. Politico, which has been tracking the waiver process, lists another four states – Alaska, Oklahoma, South Carolina and Texas  – as likely applicants. And it identifies 23 states as unlikely to enter the waiver process, including Alabama, Maryland, Utah and West Virginia.

The plans of 11 states are unknown, including North Carolina, South Dakota, and Nebraska.

Although there's no firm deadline for submitting a waiver applications Tim Jost, who has studied the waiver applications, says time is running out for states to complete the process before the first round of rebate calculations begin. Jost, a consumer representative on the National Association of Insurance Commissioners and a law professor at Washington & Lee University, explained that "HHS puts the waiver applicants through their paces.

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