HHS Allows Adjustment to MLR Rule For North Carolina, Turns Down Wisconsin

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By Sara Hansard  

North Carolina was granted a one-year adjustment to a health reform regulation on insurer spending on medical claims and quality improvements, while Wisconsin's request was denied, the Department of Health and Human Services announced Feb. 16.

According to a chart posted on the Center for Consumer Information and Insurance Oversight's website, HHS's determinations for 17 states that asked for adjustments to the medical loss ratio (MLR) requirement of the Patient Protection and Affordable Care Act could lead to as much as $323 million more in rebates to consumers than would have been the case if all state requests had been granted.

The estimate is based on 2010 data filed by insurers, and the actual rebates may differ as companies modify their business practices, Steve Larsen, CCIIO's director, said in a conference call for reporters.

In all insurance markets nationwide, health insurers could pay an estimated $1.4 billion to 9 million individuals by Aug. 1 under the MLR requirement, a Centers for Medicare & Medicaid Services spokesman told Bloomberg BNA in an e-mail.

The MLR requires individual and small group insurance plans to spend at least 80 percent of premiums on medical claims or activities that improve health care quality, and large group plans to spend at least 85 percent. The requirement took effect in 2011, and plans that do not meet the spending requirements must begin refunding the difference to consumers by Aug. 1.

The provision is “one of the most important consumer protections” in PPACA, Larsen said. Insurers are adjusting their premium pricing and their expenses to meet the standard, he said. “This means that already consumers are benefiting from this important consumer protection,” he said.

Adjustments are permitted for individual markets in states that meet PPACA and regulatory criteria showing that the requirement may destabilize the individual market in the state. The decisions on North Carolina and Wisconsin bring to 10 the number of states that were denied waivers; seven states received some relief. Guam applied for an adjustment, but HHS determined that the insurers operating in that territory were too small to come under the MLR requirement.

North Carolina Decision ‘Different.’

Unlike previous state waiver decisions, CCIIO, which is part of CMS, granted some relief to North Carolina despite the fact that carriers that have left the state or are not writing new business in the state were not doing so based on the MLR.

North Carolina “has a very concentrated market,” Larsen said. The Blue Cross Blue Shield plan in the state has more than an 80 percent market share, and no other carriers have more than a 5 percent share of the state's market, he said.

In addition, CCIIO noted that a number of carriers have announced they would withdraw from North Carolina or do not plan to write new business. “Although these decisions were and are unrelated to the MLR standard, nonetheless we felt that in North Carolina it would be appropriate to phase in the MLR standard to 80 percent to allow the remaining carriers to be more competitive,” Larsen said.

He said the North Carolina decision was “different in the sense that this was … one of the most concentrated markets coupled with a number of prior withdrawals.” The risk of carriers subsequently leaving the market “was of a greater concern to us because of the fact that others had already left and the market was very concentrated,” Larsen said.

CCIIO granted North Carolina a one-year adjustment of 75 percent for 2011, and carriers must meet the 80 percent standard in 2012. The North Carolina Department of Insurance in September 2011 requested an adjustment of the MLR standard to 72 percent, 74 percent, and 76 percent for reporting years 2011, 2012, and 2013, respectively.

Wisconsin Market Competitive, HHS Finds

Wisconsin did not present evidence that applying the MLR would destabilize the market. “We concluded that the Wisconsin individual market was a very competitive market,” Larsen said.

The Wisconsin Office of the Commissioner of Insurance in October 2011 requested an adjustment of the MLR standard to 71 percent, 74 percent, and 77 percent for reporting years 2011, 2012, and 2013, respectively.

Seventeen insurance companies in the state are large enough to come under MLR requirements, Larsen said. Nine of the companies have market shares over 4 percent, and four of the companies have market shares at or more than 10 percent, he said. “This is not a concentrated market, but a competitive market,” and most of the issuers either already meet the 80 percent MLR or they are modifying their business practices to meet the standard, he said.

“The evidence presented to us did not suggest that the remaining carriers would exit the market, and therefore we concluded the market would not be destabilized,” Larsen said.

Model Notices on MLR

HHS Feb. 16 also issued model notices that insurers must use to inform consumers of the insurers' medical loss ratios. In addition, it opened a 15-day comment period on the model notices. That announcement was published in the Feb. 21 Federal Register (77 Fed. Reg. 9931).

For More Information

Information on HHS's medical loss ratio waivers is at http://cciio.cms.gov/programs/marketreforms/mlr/index.html. A chart of Potential Rebates Saved by HHS Determinations is at http://cciio.cms.gov/programs/marketreforms/mlr/rebate-estimates.html. The MLR Notice to Policy Holders and Subscribers is at http://www.cms.gov/PaperworkReductionActof1995/PRAL/list.asp. The notice of the comment period on the MLR notices is at http://www.ofr.gov/OFRUpload/OFRData/2012-03844_PI.pdf.


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