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4 States Await Word on MLR Waiver Requests

 |  By Margaret@example.com  
   November 11, 2011

Federal officials are in the final stages of reviewing applications from Indiana, Florida, Louisiana and Michigan to determine if their medical loss ratio waiver requests will be approved.

At issue is a requirement of the Affordable Care Act that health insurers spend no more than 15% to 20% of their premium dollars on administrative expenses. The idea is to limit administrative spending so health plan members get more healthcare bang for their premium buck.

Health insurers that don't meet the MLR requirement will have to pay a rebate to their members. The Department of Health and Human Services estimates that 9 million members could be eligible to share rebates worth as much as $1.4 billion. That's money insurers 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 17 states have filed waiver requests. The applications for seven states have been approved, including Georgia and Iowa. Applications from Delaware and North Dakota were denied. Five states? Kansas, North Carolina, Oklahoma, Texas and Wisconsin—are waiting to hear if their applications are complete so the review process can begin.

HHS officials have said they expect to receive a total of around 20 MLR waiver applications, but time is running out. The rebate requirement goes into effect on Jan. 1, 2012 for any state that hasn't already been granted a waiver.

The MLR waiver applications from Indiana, Florida, Louisiana and Michigan echo a familiar argument that has often resonated with HHS officials: Meeting the MLR standard will destabilize the individual market and result in fewer insurance choices for consumers.

Here's a look at the waiver requests from each the four states awaiting a decision from HHS:

Indiana
The state department of insurance has asked HHS to exempt high-deductible health plans sold to individuals and small groups from the MLR requirement. It also wants major medical health carriers to receive a waiver through 2014 but if that isn't acceptable to HHS then it wants carriers to only be required to meet a 65% MLR standard for 2011 and to be given four years to incrementally meet the 80% standard. Indiana officials estimate the potential rebate at $29.9 million.

Florida
The state office of insurance regulation wants to delay any increase in the MLR until 2014. Until then it wants to maintain the state MLR standards of 65% for health insurers and 70% for HMOs. State officials said four insurers, with less than 1,200 total members, will exit the state market unless the waiver is granted. Florida officials estimate the potential rebate at $76 million.

Louisiana
The state department of insurance has filed a waiver request to set the MLR standard at 70% for 2011 and 75% in 2012. The DOI noted that in 2010 the average MLR was 79%, but if the largest issuer (Blue Cross Blue Shield of Louisiana) was factored out of the data, the MLR for the remaining insurers was 67%. Louisiana officials estimate the potential rebate at $8.8 million.

Michigan
The state department of licensing and regulatory affairs has asked to set the standard MLR at 65% in 2011, 70% in 2012, 75% in 2013, and 80% in 2014. The request notes that the dominant insurer, Blue Cross Blue Shield of Michigan, already operates at an MLR exceeding the federally mandated 80%. "However other commercial carriers have been operating with business models assuming lower minimum MLR requirements and need time to adjust to higher federal standard or be faced with significant rebates that could undermine profitability," said state officials in the waiver request application. Michigan officials estimate the potential rebate at $30.6 million.

HHS officials declined to comment on any of the pending applications, but the department's recent action on Georgia's MLR waiver request provides some insight how the decision to grant or deny a waiver request is made.

The state DOI requested 65% standard for 2011, 70% for 2012 and 75% for 2013. HHS noted that according to the application 66% of the largest insurers posted 2010 MLRs above 65%. It agreed with state officials that three insurers representing 16% of the individual market would be negatively affected by the 80% MLR standard and were in danger of exiting the state.

"Because Georgia has no guaranteed issue requirement, limits on health status rating, an issuer of last resort, nor does the State operate a high risk pool, any potential withdrawal by these issuers could make it difficult for their policyholders, particularly those with pre-existing conditions, to obtain replacement coverage immediately," said HHS in its decision letter.

HHS decided that some adjustment was necessary. It agreed to a 70% adjustment for 2011 and 75% for 2012. The 80% standard must be met beginning in 2013.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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