Provider Groups, Insurers Weigh in on Defining Medical Loss Ratios

A battle over regulatory interpretation is brewing over the issue of medical loss ratio—a provision included in the new healthcare reform act that will require health insurers 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.

In letters received by the May 14 deadline by the National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services (HHS), provider groups, health insurers, consumer groups, and others had multiple suggestions on what should be used to calculate that ratio—and what specifically should be classified as providing quality medical care. NAIC is preparing to deliver guidance to HHS by June 1 about how to structure the medical loss ratio provision in the law.

The medical loss ratio regulations should "clearly define which activities do and do not improve healthcare quality" and restrict the ability of health insurers to "subjectively make such a determination," said the American Hospital Association (AHA) in May 14 letter.

The AHA recommended that the new regulations require that the activity be performed by a professional who is licensed to perform the service or activity. A decision tree analysis should be used to distinguish between an activity that is "intended to limit services or reduce expenditures," such as utilization management, or to improve health, such as diabetes management program, care coordination, or shared savings programs.

A decision tree analysis might incorporate a series of questions that probe whether the activity is "aimed at reducing cost, utilization, or directs the patient to a lower cost care setting versus whether the activity measurably improves the patient’s health," AHA added.

The Medical Group Management Association (MGMA) said that calculations of insurers’ medical loss ratio should "include—as an element of the insurer’s administrative cost—claims payment administrative expenses incurred by providers." Insurers' failure to adopt "simplified, standardized, automated processes for administrative transactions involved in claims payment" will result in "significant unnecessary administrative costs" to many providers.

In addition, health insurance administrative processes should be standardized "to reflect the provisions included in the recently passed healthcare reform legislation and to free up needed resources for patient care," MGMA said. By including these "onerous administrative costs in the calculation of health plan costs," plans could be pressured to quickly standardize, simplify, and automate many interactions between plans and medical providers.

The medical loss ratio should not be used as a vehicle to "remove quality programs and their benefits from policyholders," said America’s Health Insurance Plans (AHIP).

The list of programs that provide direct benefit to the policyholders is long," AHIP said, but it includes programs that provide "nurse call lines, programs that develop and maintain the availability of centers of or networks of excellence where patients can receive specialized, unique or superior quality services from providers and institutions, case and care management programs that provide coordinated care for individuals with multiple diseases or require disease management."

Also, the loss ratio should reflect "what health plans are doing to improve quality through patient and clinical services and health information technology" in compliance with the goals and objectives laid out earlier in the federal stimulus legislation and HIPAA, the AHIP letter said.

The rules must not allow "administrative work to be defined as medical costs if a category or department has just a partial medical care role, or none at all," said the letter from the consumer group, Consumer Watchdog. For instance, "utilization review administrators whose job it is to deny physician recommended treatments have no role—even a negative role—in improving an individual's healthcare," it said.