Insurers' Comments on MLR Rule Emphasize Minimizing Market Disruption

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A high priority should be given in the next several years to avoiding market disruption from a provision in the health care reform law that sets minimum levels of premium expenditures on medical claims, the trade association that represents the largest number of health insurers said in a comment letter filed Jan. 31.

“From now until 2014, it is vitally important to minimize disruption in the pre-reform marketplace,” America's Health Insurance Plans said in its letter on the medical loss ratio interim final rule issued last November by the Department of Health and Human Services' Office of Consumer Information and Insurance Oversight.

The rule requires health insurers in the large group market to spend at least 85 percent of premium revenues on medical claims or quality improvements, and insurers in the small group and individual markets to spend at least 80 percent, beginning in 2011. Insurers that do not meet those spending targets must make refunds to policyholders beginning in 2012. Self-insured plans are not covered under the rule.

Four-fifths of the individual market will remain medically underwritten until 2014, when insurers cannot discriminate against people with health problems and insurance exchanges are to open in which individuals and small businesses can buy subsidized policies under the Patient Protection and Affordable Care Act (PPACA), AHIP said in its letter, signed by Daniel Durham, executive vice president for policy and regulatory affairs. AHIP represents about 1,300 health insurers covering more than 200 million people.

AHIP also said that for many carriers, large group pricing is not developed on a state-by-state basis, while the medical loss ratio requires insurers to calculate their loss ratios by state. “This will cause some large groups to incur significant new administrative costs they do not incur today, and will require a substantial period of adjustment to promote stability,” the letter said.

HHS should “use an application process that minimizes the burden on states and encourages rather than discourages them to apply for a [waiver] in each of the individual, small group, and large group market segments as necessary,” AHIP said. Maine and New Hampshire have submitted applications to HHS for waivers of the rule to avoid disruption in their individual and small group markets, according to HHS's website.

In numerous places, the interim final rule “threatens innovation in quality and in the design of benefit plans and delivery system payment models,” AHIP said. The rule “does not even recognize current and well-established efforts to improve quality,” such as implementation of the International Classification of Diseases, 10th Revision, coding system, which health plans are required to spend billions of dollars installing to expand information on diagnostic procedures, AHIP said.

The rule also does not allow many fraud prevention efforts to be counted as quality improvement costs, it said. AHIP called for the rule to include those costs as quality improvements.

BCBSA Letter.

In its comment letter, the Blue Cross and Blue Shield Association, which represents 39 plans that cover nearly 98 million people, asked HHS to clarify that employers should be responsible for distributing rebates. “Issuers have no information on employer changes to contribution amounts and are dependent on employers to obtain this information,” BCBSA said in its letter, signed by Justine Handelman, vice president of legislative and regulatory policy.

Alternatively, the letter said, relief should be provided for insurers that make good-faith efforts to obtain information needed to distribute the rebates.

Unlike AHIP, BCBSA supported the rule's requirement that MLR calculations be made for each market segment at the state level, rather than nationally.

PPACA “clearly requires aggregation [of cost data] at the state level,” BCBSA said, adding that regulation of insurance is generally done at the state level. Under PPACA, states are allowed to impose higher loss ratios than the 80 percent and 85 percent minimums. Aggregating large group experience nationally could result in employers in states that have lower loss ratios effectively subsidizing groups in other states, BCBSA said.

AMA, AHA Comments.

Physician groups and hospitals also weighed in on the rule. In its comment letter, the American Medical Association supported the rule's “rigorous standards” in defining quality improvements and administrative expenses. “Without these criteria, there would be significant latitude for insurers to creatively categorize cost containment, contracting, marketing, and other administrative expenses as 'quality improvement activities,'” said the letter, signed by AMA Executive Vice President and Chief Executive Officer Michael Maves.

But the AMA opposed allowing some utilization reviews to be considered quality improvements in the MLR rule. “All utilization review activities, including prospective utilization review, should be excluded from any 'quality improvement' category in the medical loss ratio. Prior authorization and other prospective utilization review programs are quintessential cost containment activities,” it said.

The American Hospital Association, representing more than 5,000 hospitals and health care organizations, expressed concern in its letter over a provision in the rule classifying only capitated payments--fixed payments made to physicians by some health plans for each enrolled patient--as medical claims. The rule does not allow capitated payments to all health care providers who deliver health services, the AHA said in its letter, signed by Linda Fishman, senior vice president for public policy analysis and development.

Insurers could “attempt to shift significant administrative costs to the medical claims portion of the MLR equation by entering into capitated payment arrangements with intermediate risk-bearing organizations, such as medical management service organizations (MSOs), that are not part of a provider organization or integrated delivery system providing services to the plans' enrollees,” AHA said. Insurers are increasingly using the medical management service organizations, AHA said.

It also called for including communitywide collaborative patient safety and quality initiatives that hospitals engage in with insurers and state hospital associations as quality improvements in the loss ratio. “These initiatives frequently yield dramatic improvements to health care quality that typically benefit patients and consumers in the entire community, not just the enrolled populations of the health plans involved,” the organization said.

Consumer Groups Weigh In.

A comment letter signed by 28 patient and consumer groups, including the National Association of Insurance Commissioners' consumer representatives who worked on developing the rule, largely supported the HHS interim final rule.

But the letter, written by NAIC consumer representative Timothy Jost, a professor at Washington and Lee University School of Law in Lexington, Va., expressed disappointment in a provision that provides special treatment for “mini-med” plans that offer limited benefits. HHS has granted waivers to many such plans from the MLR requirement for 2011.

“Although it may make sense to allow limited benefit plans to continue in operation at this point rather than to leave their enrollees without any coverage, these plans should be required to operate as efficiently as full coverage plans and should not be excused from compliance with the medical loss ratio requirements of the ACA,” the letter said.

The letter also urged HHS to reconsider the broad definition of federal taxes that can be excluded from the denominator of the medical loss ratio, which makes it easier for insurers to meet the rule's requirements. The broad definition “goes far beyond the limited definition intended by the drafters of the ACA,” the letter said, pointing to an Aug. 10, 2010, letter from Democratic congressional committee chairmen calling for the tax exclusion to be limited only to new taxes imposed by PPACA.

The letter also expressed concern that states may use “adjustments” which could “allow insurers to continue to operate with low medical loss ratios.”

By Sara Hansard

AHIP's comment letter is available at The Blue Cross and Blue Shield Association's comment letter is available at The AMA's letter is available at The AHA's letter is available at The letter from patient and consumer groups is available at

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