Insurance regulators miss early deadline on premium spending rules

By David S. Hilzenrath
Wednesday, June 2, 2010; A05

Implementing a controversial provision of the new health-care law is proving harder than planned.

A national assembly of state insurance regulators, which is helping the federal government translate the law into more specific rules, said it was unable to meet a Tuesday deadline for standards meant to ensure that consumers get value for their premium dollars.

At issue is a requirement that insurers devote at least 80 to 85 percent of premiums to the payment of medical claims and other expenses that improve health care.

The requirement aims to limit spending on items such as marketing, administrative overhead, executive pay and dividends for shareholders.

Consumer advocates say the standards should be written strictly to prevent insurers from counting routine administrative expenses toward the requirement. Insurers have urged the National Association of Insurance Commissioners (NAIC) to give them credit for a variety of expenses, including nurse hot lines, "utilization review programs" that determine whether they should pay for services doctors have proposed, and appeals when consumers ask them to reconsider decisions to deny claims.

Insurers have argued that a narrow definition of eligible expenses could prompt them to eliminate services that benefit consumers.

Although the law set a Dec. 31 deadline for regulators to write standards governing the "medical loss ratio," or the percentage of premium revenue spent on medical care, Health and Human Services Secretary Kathleen Sebelius had asked the NAIC to get back to her by Tuesday. That would have given the insurance industry more time to adjust to the new requirements.

In a letter to Sebelius on Tuesday, NAIC leaders said they are still trying to determine how different types of expenses should be factored into the ratio. Insurers that fall short would have to pay rebates to customers.

"The medical loss ratio and rebate program . . . have the potential to destabilize the marketplace and significantly limit consumer choices if the definitions and calculations are too restrictive," NAIC President Jane Cline and chief executive Therese M. Vaughan wrote. "Equally, the medical loss ratio and rebate program could be rendered useless if the definitions and calculations are too broad."

HHS spokeswoman Jessica Santillo said the government expects to receive NAIC's recommendations "soon."

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