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MLR Testimony Heard by House Subcommittee

 |  By Margaret@example.com  
   June 06, 2011

Political lines were quickly drawn at Thursday's meeting of the House Energy and Commerce Committee's subcommittee on health where testimony about medical loss ratios was heard from representatives of small businesses, insurance underwriters, policy analysts, consumer advocates and health plans.

Chairman Joe Pitts (R-PA) said he called the meeting to "review the healthcare law's regulatory burden." Frank Pallone Jr. (D-NJ) countered that the meeting was "nothing more than another effort on the part of Republicans to undermine healthcare reform."

The Affordable Care Act requires health plans to spend 80% to 85% of premium revenue on reimbursements for clinical services and activities that improve health care quality. The Department of Health and Human Services has issued regulations defining activities that improve health care quality or fall within the department's definition of clinical services.

Rep. Pitts noted HHS's "vast control over the design of private health insurance coverage irrespective of consumer healthcare preferences."

A number of witnesses spoke in opposition to the MLR, which they said cause problems for brokers and could limit access to popular plans such as high-deductible health plans. Janet Trautwein, CEO of the National Association of Health Underwriters, said agents and brokers are facing a "desperate economic situation" because of the MLR requirement. She testified that because agents are mostly self-employed, their commissions shouldn't be considered administrative expenses.

Randi Reichel, an attorney who spoke on behalf of the health plan industry, said MLR requirements "impose an unprecedented new federal cap on the administrative costs of health plans, strictly micro-managing their ability to invest in new initiatives and innovations to benefit their enrollees."

Reichel added that because the MLR provision went into effect in January 2011 health plans and states didn't have a transition period to adjust to the new requirement. She noted that 12 states have submitted MLR waiver requests and three -- Maine, Nevada and New Hampshire -? have been approved with some modifications.

She contended that the MLR could limit consumer access to popular high-deductible health plans. "These lower-cost benefit options are not necessarily less costly to administer on a per-enrollee basis. They will have lower loss ratios and a greater likelihood of being noncompliant with the MLR rule."

Scott Harrington, a professor at the Wharton School at the University of Pennsylvania, said the MLR represents a "significant move toward government micromanagement of health insurance." He testified that the MLR provisions will "distort insurers' incentives for legitimate business decisions, destabilize some states' markets, and could reduce incentives for certain beneficial innovations in coverage and payment."

Harrington agreed with earlier testimony by Randi Reichel that the MLR requirement could "discourage some coverage designs that could lower premiums but involve relatively high nonmedical costs in relation to insured benefits, such as certain high-deductible plans. They could discourage potential innovations in coverage design and managed care that might require a lower MLR in conjunction with lower premiums and better value for buyers. They could cause some plans to contract with narrower provider networks and/or enter into arrangements shifting more administration to providers."

Harrington, whose testimony may be read in full here, said MLR regulations should be replaced with pro-competitive reforms that would encourage states to adopt policies that promote informed competition and consumer choice, including targeted minimum standards for state regulation, and providing the states with flexibility to meet regulatory objectives given differences in consumer needs, preferences, and economic conditions.

Speaking in support of the medical loss ratio, Terry Gardiner, vice president for policy and strategy at the Small Business Majority said that without the MLR "healthcare reform would lack the teeth needed to lower health insurance premiums and hold insurers accountable for unnecessary overhead costs that have nothing to do with medical care and more to do with poor accounting policies and minimal oversight."

He added that "the MLR will help keep premiums down so small businesses can save on healthcare-related expenses and invest in their companies. That means more jobs and greater economic growth."

In his testimony, executive director of Health Care for America Now Ethan Rome noted the MLR rule has already helped cut rates for Aetna subscribers in Connecticut where the insurer expects to pay customer rebates for 2011 for not meeting the MLR standards. Rome stated that across the country "premiums have risen sharply…..three times greater than wage growth. Insurers blame these increases on the rising cost of medical care, yet premiums have been going up at double the rate of medical inflation as gauged by the Bureau of Labor Statistics."

He opposes any effort to remove broker commissions from the MLR. "We need Congress to work on behalf of consumers to protect the ACA from efforts to undermine it, such as the proposal to weaken the MLR by giving a special break to health insurance brokers. If the broker commissions are taken out…premium rates will continue to increase even as healthcare costs drop."

Steve Larsen, deputy administrator and director of the center for consumer information and insurance oversight at the Centers for Medicare & Medicaid Services was expected to testify but instead submitted written comments.

He noted that the MLR regulations incorporate recommendations by the National Association of Insurance Commissioners, including methodologies for calculating MLR and the reporting format to be used by the industry. "The process included significant input from the public, states, and other key stakeholders, and was widely praised for its openness and transparency. The results of that process were approved unanimously by the NAIC Commissioners."

Larsen said state flexibility is already built into the MLR process because the ACA allows for a temporary adjustment to the individual market MLR standard if a state requests it and demonstrates that the 80% MLR standard may destabilize its individual insurance market. He added that the process and criteria for evaluating state requests for adjustments were based on NAIC recommendations.

No action was taken by the committee.

See Also:

MLR May Sting, but HIEs Could KO Health Insurance Brokers
3 MLR Questions Payers, Providers Should be Asking
How MLR Can Hurt or Help Contract Negotiations

Health Insurers Gird for MLR Changes

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