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Maine March 8 became the first state to receive an adjustment to a rule under the federal health care reform law that requires individual health insurance plan issuers to spend at least 80 percent of premiums on medical care or quality improvements.
In a letter from Center for Consumer Information and Insurance Oversight Director Steven Larsen to Mila Kofman, Maine's superintendent of insurance, the Department of Health and Human Services granted Maine's request that the state be allowed to use a lower standard of 65 percent. CCIIO is part of the Centers for Medicare & Medicaid Services, which is part of HHS.
“We agree with the reasoning that led to the [Maine Bureau of Insurance's] conclusion that application of the 80 percent [medical loss ratio] standard in Maine has a reasonable likelihood of destabilizing the Maine individual health insurance market,” the letter said. Maine was the first state to apply for a waiver from the medical loss ratio rule in July 2010.
Under the Patient Protection and Affordable Care Act (PPACA), individual and small group plans that do not spend at least 80 percent of premiums on medical or quality improvement expenses, and large group plans that do not spend at least 85 percent, must refund the difference to policyholders beginning in 2012. The law allows for adjustments to the standard for individual plans if there is “reasonable likelihood” that the requirement would destabilize the individual market in a state.
HHS granted the adjustment for three years, but it conditioned the adjustment for the third year on the requirement that the Maine Bureau of Insurance provide CCIIO with updated data in 2012 showing a continued need for it.
CCIIO said its decision “is rooted in the particular circumstances of the Maine insurance market.”
There are three major issuers in the Maine market, Anthem Blue Cross Blue Shield of Maine, MEGA Life & Health Insurance Co., and HPHC Insurance Co. MEGA Life & Health Insurance Co., whose nearly 14,000 enrollees make up about 37 percent of Maine's individual market of 37,000, is the one issuer at risk of leaving the state market if the 80 percent medical loss ratio standard were implemented there, CCIIO said.
The Maine Bureau of Insurance calculated that MEGA had a 68 percent medical loss ratio under the PPACA medical loss ratio standard in 2009, when it had an underwriting loss of $1.6 million and a net after-tax loss of $1.1 million in the individual market. In 2004 the company withdrew from Maine's small group market after the state implemented a 75 percent medical loss ratio standard for small group plans.
Anthem and HPHC had medical loss ratios above 80 percent in 2009, CCIIO said. Many of the other individual policies sold in the state are more comprehensive and more expensive than MEGA's, it said, and MEGA's exit from the Maine market “could leave many of the approximately 14,000 MEGA policyholders with the prospect of materially higher premiums and out-of-pocket expenses in order to procure replacement coverage.”
Maine law requires the insurance superintendent to disallow premium rates unless issuers meet a 65 percent medical loss ratio standard. Maine's medical loss ratio standard does not include adjustments for quality improvement activities, taxes, or small plans, as the federal standard does. Maine also does not have a refund requirement as the federal law does.
Rep. Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee, told BNA in an e-mail that HHS's decision showed the flaws in PPACA.
“First the administration needed to exempt over 1,000 unions and businesses because the health care law would significantly increase their premiums or reduce access to benefits,” he said. “Now we are learning that entire states need relief from the effects of the health care law as well. What happened to the promise that the health care law would lower costs and premiums? These waivers are nothing more than a tacit admission that the health care law is a failure.
“What is unaffordable today will still be unaffordable in three years,” when most of the major provisions of PPACA take effect, Upton added.
America's Health Insurance Plans applauded the HHS decision, which spokesman Robert Zirkelbach told BNA in an e-mail would “help to ensure that individuals in the state are able to keep the quality, affordable coverage they like and rely on today.”
Such waivers “should be applied broadly in states across the country to minimize disruptions for consumers as we transition to the broader market reforms which go into effect in 2014,” Zirkelbach said.
Maine Superintendent Kofman issued a statement saying, “We appreciate the evidence-based approach HHS took with our request and in working with us.” The state submitted numerous data documents to HHS in asking for the adjustment.
Washington and Lee University School of Law Professor Timothy Jost, who is a consumer representative to the National Association of Insurance Commissioners, told BNA in an e-mail that “Superintendent Kofman requested an adjustment for Maine given the unique circumstances of Maine's market.” The HHS medical loss ratio regulation, which was adopted from a model developed by NAIC (see previous article), created standards for determining whether a market might be destabilized, and HHS followed those standards by requiring Maine to produce data to support its claim, Jost said. “This is the process Congress envisioned and it was handled appropriately.”
Jost said he expects other states to request adjustments, “and I expect that they will all be held to the same rigorous process Maine was. If adjustments are warranted they will be granted. This is how we get to 2014.”
By Sara Hansard
Information on Maine's adjustment to the medical loss ratio standard is available at http://cciio.cms.gov/programs/marketreforms/mlr/mlr_maine.html. Larsen's letter and a fact sheet on MLRs and the Maine adjustment are available in HealthDocs™.
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