State regulators finalize recommendations on insurers' 'medical loss ratio'

The House of Representatives passed landmark legislation to overhaul the nation's health-care system, approving a Senate bill and a separate package of amendments.
By N.C. Aizenman
Washington Post Staff Writer
Friday, October 22, 2010; 12:11 AM

State insurance regulators finalized their recommendations to the Obama administration Thursday on how to implement a key provision of the new health-care law, largely favoring the views of consumer advocates over those advanced by the insurance industry.

Starting next year, new "medical loss ratio" rules will require insurers to spend 80 to 85 percent of the premium dollars they collect on medical claims or activities that improve the health of their customers, with only the remaining 15 to 20 percent available for administrative costs and profits.

However, the law left it to government regulators, in consultation with the National Association of Insurance Commissioners, to answer the thorny question of which activities insurers can count as improving health.

Since the spring, the NAIC has held dozens of conference calls and received reams of comments from all sides in the debate.

Though the group's recommendations are not binding, Health and Human Services Secretary Kathleen Sebelius has said she is likely to follow them fairly closely.

Despite a last-ditch effort to attach amendments sought by insurers and insurance brokers, the final version of the recommendations, adopted by a unanimous vote of the commissioners at their meeting in Orlando on Thursday, largely resembled earlier drafts approved by NAIC subcommittees over the preceding weeks and months.

Among the costs that would qualify as improving health under the proposal: spending to increase patient safety, invest in some health information technology, and prevent medical errors and hospital readmissions.

Among those that would not: nurse hotlines that do not deal directly with patient care, efforts to reduce fraud, and insurance brokers' commissions.

The classification of that last item as an administrative cost provoked particular dismay from representatives of insurance agents, who in recent days had pushed for an amendment that would have removed it from the list. They contend that unless the rules are changed, insurers will be tempted to cut broker fees, driving many out of business and inundating state regulators with questions from consumers. The commissioners, some of whom echoed those concerns, opted to form a group to consult with HHS on the question.

Insurers were similarly disappointed by the failure of another eleventh-hour amendment that would have enabled them to lump together spending on their plans across states for the purposes of meeting the medical loss ratio, rather than being required to calculate it on a state-by-state basis. But this was just one of many aspects of the NAIC's final recommendation to which the industry objected.

"The current . . . proposal will reduce competition, disrupt coverage, and threaten patients' access to health plans' quality improvement," Karen Ignagni, president of America's Health Insurance Plans, said in a statement.

Timothy Jost, a law professor at Washington and Lee University who is a consumer representative to the NAIC, countered that the commissioners had granted insurers plenty of leeway. "There's no end to what [insurers] would have wanted to put under 'quality improvement' if they could have," he said. "But the NAIC looked at this really carefully through a process of months, and the industry was on every one of the calls and had a great deal of input."

© 2010 The Washington Post Company