More Efforts Called for Defining Medical Loss Ratio by Locality

Some health insurers are "mounting an all-out effort to weaken" the new healthcare reform provision that establishes minimum medical loss ratios in the commercial health insurance market, according to Sen. Jay Rockefeller (D-WV), chairman of the Senate Commerce, Science, and Transportation Committee.

Information obtained by the committee shows that medical loss ratios "significantly vary according to where consumers live and in which market segment they are shopping for health insurance," Rockefeller said in separate letters sent to Health and Human Services Secretary Kathleen Sebelius and National Association of Insurance Commissioners President Jane Cline.

Under the new healthcare reform law, health insurers are being required to spend at least 80 cents out of every premium dollar in the individual and small group markets on actual medical care and at least 85 cents in the large group market on that care starting Jan. 1, 2011. But the committee reported the medical loss ratio data—when aggregated at the national or multi-state level—are not capturing the "diversity of consumer experiences."

For instance, committee staffers found that small businesses purchasing group health insurance in Virginia from Anthem Health Plans were subject to a medical loss ratio of 66.6%, while small business owners in nearby Kentucky with coverage from Anthem Health had a medical loss ratio of 80.9%—which exceeds the minimum loss ratio set in the reform law.

And, WellPoint customers in New Hampshire purchasing individual health insurance policies had a plan with a low medical loss ratio (62.9%), while customers purchasing health insurance in Maine from WellPoint had a plan with a much higher medical-loss ratio (95.2%)

However, aggregating state data with high medical loss ratios with other multistate or nationwide data makes it difficult for regulators "to identify harmed consumers"—such as Virginia small businesses and New Hampshire individuals, the letters said. These entities under the law should be entitled to rebates—the difference between the actual medical loss ratio and the amount specified under the law, Rockefeller said.

Depending on which way the data is aggregated, these medical loss ratios are not clear to consumers—or hidden with other data. Rockefeller called for HHS and NAIC to consider requiring insurers to report their medical loss ratio data "at a level of aggregation that would allow consumers living in a particular state or other definable geographic region to determine how insurers are spending their healthcare dollars."

Also, medical loss ratios are appearing better than they should among some insurers because they are "reclassifying" certain expenses by taking items traditionally classified as administrative and placing them under medical care. They include areas such nurse hotlines, disease management, and clinical health policy.

By reclassifying certain expenses as "quality improvement expenses," one company—WellPoint—was able to increase its medical loss ratio by 1.7% in 2010. This means the company converted more than half a billion dollars of 2010 administrative expenses into medical expenses, the committee said.

Rockefeller is asking HHS and NAIC to clarify what is meant by "activities that improve healthcare quality." Once evidence-based definitions are established, insurance companies then should "consistently apply them to their balance sheets," he wrote.