TX Strikes Out on MLR Waiver Request

The Centers for Medicare & Medicaid Services denied on Friday a request from the Texas Department of Insurance to allow health insurers in the state more time to meet new MLR standards. CMS rejected what has become a standard argument among waiver applicants, that the 80% medical loss ratio requirement would destabilize the state's individual market and cause insurers to withdraw.

In the waiver request filed with CMS in July 2011, Texas officials asked for an adjustment of the MLR standard to 71%, 74%, and 77% for the reporting years 2011, 2012, and 2013, respectively. At issue is a requirement in the Patient Protection and Affordable Care Act that health insurers spend no more than 15 cents to 20 cents of every premium dollar collected on administrative expenses.

Health insurers that don't meet the MLR requirement will have to pay a rebate to their members. CMS estimates that up to $158.8 million in rebates could be payable to Texas health insurance customers.

Gary Cohen, acting director of oversight at the CMS Center for Consumer Information and Insurance Oversight, noted in a press conference that with 34 carriers Texas has a "robust individual market and there is no indication that insurers will leave". He added that most insurers have "are adjusting their business models to meet the 80% requirement." Others, he said, are "sufficiently profitable" that paying the rebate "will not be a hardship."

The CMS letter announcing the decision noted that Texas has a state-operated high-risk pool that provides guaranteed coverage to Texas residents with qualifying medical conditions. "We conclude that the remaining insurers in Texas' robust individual market and the Pool would be able to offer comparable products to the enrollees of any withdrawing issuer," says the letter.

A statement on the TDI web site says, "In denying Texas' application, HHS stated that it took into account each carrier's MLR and profitability…and asserted that few issuers are reasonably likely to exit the individual market in Texas. The department's application clearly showed otherwise.

Of the 34 Texas carriers subject to the law, 23 will pay rebates based on 2010 data; at the 80% MLR threshold, these rebates will absorb the net underwriting profit for the entire individual market.

"HHS' decision does not allow sufficient time for carriers to adjust their operating models, nor does it contemplate the effects on small and mid-level carriers that lack the resources and administrative economies of scale to compete in the individual market under PPACA. A reasonable, responsible phased-in approach would still have afforded rebates to Texas consumers without risking disruption, dislocation and withdrawal of carriers in the individual market. The department will continue to work to ensure the availability of high-quality, high-value health insurance to this important underserved segment of the market."

Texas officials now have 10 days to appeal the CMS decision. Officials at the Texas DOI did not reply to questions regarding any appeal prospects.

Only 17 states and Guam filed MLR waiver requests for 2011 and CMS has acted on all but two: North Carolina and Wisconsin. Those decisions are expected by February 8 unless CMS extends the deadline by 30 days.

CMS has granted six waivers: Georgia, Iowa, Kentucky, Maine, New Hampshire, and Nevada. It denied a waiver for Guam and eight states: Delaware, Florida, Indiana, Kansas, Louisiana, Michigan, Oklahoma, North Dakota, and Texas.

Three states have appealed the denial of their MLR waiver requests. The appeals of Indiana, Louisiana, and most recently Florida were also denied. In a January 19 letter to Kevin McCarty, the Florida insurance commissioner, CMS's Steve Larsen said "we have found no basis to modify our previous determination."

Florida hinged its appeal efforts on three standard arguments:

1. The implementation of the new MLR requirement creates a barrier to entry
2. New MLR ratios would hurt the agent and broker workforce
3. Some insurers would potentially depart if the 80% MLR rate were upheld

In making the appeal McCarty contended that "failure to obtain the requested adjustment will cause permanent, irreparable harm to our market and the distribution channel for health products and services."

In the appeal denial letter Larsen noted that the appeal provided "no evidence that insurers would be unwilling to enter the market due to their inability to meet the 80% MLR standard," or that the new standard was responsible for driving several insurers from the market.

"Evidence presented by the (Office of Insurance Regulation's) application suggests that these six issuers' withdrawals were not caused by the 80% MLR standard," says the letter. In regards to the agent and broker workforce, Larsen states in the letter that no evidence was presents that "consumers would be unable to access agents and brokers absent an adjustment to the MLR standard."

"We are disappointed to learn about HHS' determination made on January 19. The Office continues to be concerned about the impact the MLR ratios have had, and will continue to have on the individual health insurance market in Florida," Jack McDermott, spokesperson for the Florida Office of Insurance Regulation, told HealthLeaders Media in an e-mail exchange.

Florida will have another chance to convince CMS that its needs relief from the MLR standards. Any state that wants to can begin filing requests now to adjust the 2012 MLR standard. However, to use 2011 data as the basis for the request states may need to wait until after April 1, when most issuers will file their supplemental health care exhibits with the National Association of Insurance Commissioners.