Health insurers raised little more than an eyebrow at the new medical loss ratio (MLR) regulations recently issued by the Department of Health and Human Services (HHS). The regulatory body largely formalized the recommendations put forth by the National Association of Insurance Commissioners (NAIC) in October, as directed by the ACA.
That didn't stop industry lobbyists from politely telling the government what's wrong—and always has been—with the rules. To review, health insurers are required to apply between 80% and 85% of premiums directly to patient care or quality improvement initiatives. Those that don't' comply—and this will be closely watched, you can bet—will be forced to provide rebates to their customers. The rules dictate how insurers are to calculate MLR, including what constitutes a patient care versus an administrative expense.
In a statement issued by Karen Ignagni, president and CEO of America's Health Insurance Plans (AHIP), the organization commended HHS for taking into account potential disruption in markets with very few individual insurance players, while reiterating its displeasure with what HHS determined as falling outside the realm of a medical expense.
"More consideration needs to be given to the cost of federally mandated investments in modernizing claims coding and the value of health plans' programs to prevent fraud," she said.
In addition to claims processing technologies and costs associated with fraud prevention activities, AHIP says the money insurers are dedicating to adjudicate claims under the new ICD-10 coding standard should be included as patient care expenses.
If health insurers had gotten their way, we might have an industry largely unaffected by MLR. But that's not the case, and health insurers are girding for change—at least in some markets and service lines such as individual insurance. As noted by HHS, MLR rules could cause major turmoil among individual carriers who work with brokers to provide coverage to some 4 million consumers nationally.
"Their current [MLR] requirements are much lower than the new 80% rule, so they will not be able to achieve this overnight," said Jinn-Feng Lin, director and actuary, Global Human Resource Services, PricewaterhouseCoopers. "They will likely take action to reconstruct their commission structure or even to get out of this line of business."
Brokers can earn 20% to 30% in first-year commissions, which represents a huge administrative expense, making it impossible for many carriers to comply with the minimum 80% MLR rule in the short term. "They are hoping for transitional relief that will take them into 2014," according to Lin, who noted that the MLR rules include how states can request wavers from HHS on behalf of their carriers.
The MLR rules also could mean big changes self-funded, employer-sponsored plans that rely on insurers to administer their policies, Lin said. "Although self-funded plans are not part of the MLR requirements, it might change the way they operate."
For instance, health plan call centers that offer nonclinical assistance to their members are considered an administrative expense, which may incite insurers to drop this service across the board.
Aside from some notable anomalies—some carriers are abandoning health lines and others are consolidating to take advantage of economies of scale in a more restricted operating environment?the health insurance industry will remain largely intact and operating with the goal of making a profit. Until 2014, that is, when the full force of ACA will be felt by health plans. What the industry will resemble then is anyone's guess. Stay tuned ...