North Dakota's Medical Loss Ratio Adjustment Request First to Be Rejected

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North Dakota is the first state to have its request to loosen requirements for health insurers under the reform law rejected, the Department of Health and Human Services said July 22.

Along with that decision, HHS granted requests from Iowa and Kentucky for an adjustment to the medical loss ratio (MLR) requirement insurers must meet under the Patient Protection and Affordable Care Act.

“After reviewing the data that they submitted we concluded that there did not appear to be a risk of market destabilization in North Dakota, and so we did not approve the North Dakota application,” Steve Larsen, director of the federal Center for Consumer Information and Insurance Oversight, said in a press call with reporters.

Under the MLR requirement, individual and small group plans must spend at least 80 percent of premium revenue on medical claims or quality improvements, and large group plans must spend at least 85 percent. Plans that do not meet that standard must refund the difference to policyholders beginning in 2012.

PPACA allows the HHS secretary to make adjustments for individual plans if the agency determines that the market in a state would be destabilized before major reforms of PPACA take effect in 2014, including the implementation of health insurance exchanges for the sale of individual and small group policies.

“In most cases the MLRs of the plans were moving up closer to the 80 percent,” Larsen said about the three decisions. Data from 2010, which were more recent than the data originally submitted by states that have requested adjustments, showed that pattern, he said. “As we get updated data, we see that the MLRs are moving [upward], consumers are getting more value, and so the need to make the adjustment as originally submitted by the particular state was lessened,” he said.

With the three latest decisions, HHS has made decisions on adjusting the medical loss ratio for six states. Adjustments were granted earlier this year to Maine, New Hampshire, and Nevada (see previous article). Six more states and Guam have also asked for adjustments.

In all cases, “This was a very data-driven process,” Larsen said. “These are a balancing of a number of consumer interests. First and foremost is to maintain a stable insurance market so that people can maintain the coverage that they have, but also to implement the purpose of the MLR provision, which is to make sure that people are receiving value for their premiums.”

CCIIO Calls Decision ‘Good’ for North Dakota

The rejection of North Dakota's request for an adjustment “should be viewed as a good thing for North Dakota, not a bad thing,” said Gary Cohen, director of CCIIO's oversight division. “It means that consumers are already seeing the benefits of the Affordable Care Act and of the MLR provision,” he said.

North Dakota has three carriers, two of which are pricing to an 80 percent medical loss ratio, that make up most of the state's individual market, Cohen said. “All three of those carriers will be in the market going forward at an 80 percent medical loss ratio,” he said.

“The principal factor that we're looking at is, is it likely that any of the carriers will leave the market before we get to 2014, when consumers will have better and more affordable options? Are consumers at risk of losing coverage because their insurance carrier leaves the market?” Cohen said. “We just did not any see any basis to reach that conclusion.”

Only Time Insurance Co., which accounts for 10 percent of the North Dakota market, expects its medical loss ratio to be “a little bit below that for 2011, but they're pricing to that level for 2012,” Cohen said.

Although it will not be clear until carriers submit data in June 2012, Time Insurance Co. indicated that it may have to pay rebates in 2011, Cohen said. But the company indicated it will reach the 80 percent medical loss ratio in 2012, he added. Even if the company pays rebates in 2012, it appears it will still be profitable in the North Dakota market for 2011, Cohen said.

In its application, North Dakota “really didn't point to any particular carrier that it was concerned about leaving the market,” Cohen said. “We basically were left with the conclusion that North Dakota has a strong, stable insurance market” and there was no basis for making an adjustment, he said.

Iowa, Kentucky

HHS modified Iowa's request to allow individual plans in that state to price policies at 67 percent for 2011, 75 percent for 2012, and 80 percent in 2013 and thereafter, Larsen said. The Iowa Department of Insurance in March requested an adjustment to a 60 percent medical loss ratio standard for 2011, 70 percent for 2012, and 75 percent for 2013, according to information posted on CCIIO's website.

Kentucky's request was modified so that individual carriers will have to meet a 75 percent medical loss ratio in 2011 and 80 percent in 2012 and beyond, Larsen said. Kentucky's Department of Insurance in February requested an adjustment to 65 percent, 70 percent, and 75 percent for 2011, 2012, and 2013, respectively, according to the CCIIO website.

By Sara Hansard