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Insurance Companies Lose in Early Round of MLR Implementation

August 18, 2010 - by Donny Shaw

Like most big pieces of legslation, the health care reform bill (a.k.a. the Affordable Care Act) shunts a lot of specific policy decisions off to agencies and regulators to be made after it becomes law. Yet, as soon as things move out of Congress and the big political battles end, hardly any attentionat all is paid to to this process by which the bills in Congress actually start to take effect.

One of the areas in the health care bill that has the potential to have a big impact on how health insurers operate is the medical loss-rate provision (MLR), which puts limits on how much revenue from premiums can be used on non-care-related aspects of their business, like advertising, underwrting and administrative costs. In March, I seconded Bruce Webb’s sentiment and called this “the most important health care reform provision you’ve never heard of.”

The limits written into the law are fairly strict (15% for insurers in large-group markets and 20% in individual and small-group markets), but how effective they actually end up being depends on how the regulators in charge of implementation promulgate the specifics and define certain words.

David Dayen reports today that implementation decisions are already starting to be made and, so far, folks who favor tough medical-loss-ratio limits should be pleased:

Among other things, AHIP [insurance company political advocacy group] wanted fraud prevention to count under the MLR, along with procedural reviews of such techniques as imaging services and wellness incentives in the individual market. Under no definition do these fall under “medical care”; rather, they are cost-cutting measures to reduce expenses. The NAIC did the right thing to reject their inclusion.

The MLR blank form does include other items, like some expenses incurred while detecting and recovering money from fraud, and something entitled “improving health care quality expenses incurred” (nobody seems to yet know what that means). But the insurance industry clearly wanted more, and felt shortchanged. With nearly 1,000 lobbyists at the Seattle meetings, the industry could have done better.

The final rules on the MLR are set by the Affordable Care Act to take effect on January 1, 2011. Some of the most important implementation decisions have yet to be made, such as — as Dayen notes — whether or not insurers can exclude their federal tax payments when calculating their MLR. We’ll keep watching the implementation of this and other provisions. For now, check out this helpful implementation timeline from the Kaiser Family Foundation to get a sense of where we’re at and what to be watching for.

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