Insurers, commissioners hammer out details of health-care reform

By David S. Hilzenrath
Washington Post Staff Writer
Thursday, May 13, 2010; 9:54 AM

Quick quiz:

If you were a regulator interpreting the new requirement that health insurers use at least 80 or 85 percent of their premium dollars to pay medical bills or otherwise improve consumers' health, which of the following expenses would you count toward the quota:

1. Combating fraud and other overbilling by doctors and hospitals.

2. Running "utilization review" or "pre-certification" departments to determine whether the insurer should cover treatment that doctors have proposed.

3. Conducting internal or external reviews when patients appeal an insurance company's decision to deny coverage.

Insurers have urged regulators to give them credit for all of the above.

In comments submitted to the National Association of Insurance Commissioners (NAIC), which is helping the government translate the new requirement into detailed rules, members of the industry have asked for permission to count a wide range of expenses.

The BlueCross BlueShield Association, for example, has told rulemakers that its efforts to improve health quality include "reducing inappropriate and sometimes potentially harmful care."

Consumer advisers to the NAIC have countered that some expenses the association proposed including "are core administrative functions of insurance companies."

"Indeed, a major function of [those] activities is to deny services to enrollees and to contest their claims to services," six NAIC consumer representatives wrote.

As the debate playing out at the NAIC shows, the long, hard-fought battle over-health care legislation is quickly turning into a battle over health-care regulations. The ultimate impact of the law President Obama signed depends on fine print that has yet to be written.

One of the first rules the government must issue will explain how to calculate so-called "medical loss ratios," which traditionally measured the percentage of insurance premiums that insurers devoted to medical claims. Starting next year, insurers covering individuals and small groups must have medical loss ratios of at least 80 percent, and insurers in the large group market must have ratios of at least 85 percent.

The idea was to make sure that consumers get value for their premium dollar, partly by discouraging excessive spending on items such as advertising, administrative overhead, shareholder dividends and executive pay. Insurers that fall short of the required medical loss ratios must pay annual rebates to their enrollees.

Insurers already won a round in the drafting of the new law. It allows them to count not just medical bills but also "activities that improve health-care quality." That language leaves considerable room for interpretation.

Insurers have argued that it should encompass nurse hotlines and care management programs -- for example, efforts to protect patients from harmful drug interactions and make sure they stay on prescribed treatment regimens.

"It is critical that the medical loss ratio not be used as a vehicle to remove quality programs and their benefits from policyholders," America's Health Insurance Plans, an industry group, wrote.

Some of AHIP's recommendations took a broader view. The group urged rulemakers to consider the expense of complying with "costly new administrative simplification standards." In addition, AHIP said, "We strongly urge the inclusion of all fraud programs in the quality category to recognize that in order to maximize the provision of quality care, carriers must maximize the funding to pay for it."

Aetna wrote that the ratio should include utilization review, health information technology and external appeals.

Appeals contribute to quality by ensuring that patients "access appropriate care in a timely fashion," Aetna said. Aetna also argued for costs associated with "arranging favorable provider reimbursement rates."

Assurant Health wrote that quality improvement efforts include evaluating medical bills for proper coding, creating personal health records for patients, and making information available about the cost and quality of individual health-care providers. Such information "will result in lower quality providers being driven out of business, thereby increasing the overall quality of care," Assurant said.

The BlueCross BlueShield Association said that the ratio should include the cost of checking health-care providers' medical credentials before admitting them to an insurer's network. The association noted that its proposed definition of quality-related functions "has significant overlap with 'cost containment' activities."

Some of the big questions rulemakers must answer are whether medical loss ratios for each insurer should be computed at a state-by-state or countrywide level, and whether they should be reported for segments of an insurance company's business or for the company as a whole. Taking a broader approach could entail less administrative expense but could mask historically sharp variations.

Other potentially high-stakes decisions involve more arcane issues. A group of consumer representatives to the NAIC have argued that the medical loss ratio should reflect only those claims the insurer has already paid. That would prevent insurers from gaming the system by manipulating reserves for pending claims, the consumer representatives wrote.

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