By N.C. Aizenman
Washington Post Staff Writer
Thursday, December 30, 2010; 10:53 PM
Days before a key and controversial provision of the health-care law is set to take effect, Maine is the only state to have asked the Obama administration for an exemption, despite concerns expressed by at least a dozen states.
Beginning in 2011, insurers must devote at least 80 percent of the premiums they collect to medical claims or other activities that improve customers' health - leaving no more than 20 percent for the insurer's administrative costs or profits. Companies that do not spend enough on the right purposes will have to refund the difference to their customers in 2012.
Consumer advocates have hailed the new "medical loss ratio" standard as a ground-breaking protection against profiteering by insurers. But the law's drafters were concerned that it could prove too onerous for plans selling to individuals, whose customer base is less stable and healthy than those of plans serving small and large businesses. So the law permits states to request temporary adjustments of the standard from the Secretary of Health and Human Services.
According to rules issued by HHS, a state must provide data demonstrating that there is a reasonable risk that the new standard will force a critical mass of insurers to pull out of its individual market, leaving residents who cannot get insurance through their employer with little or no ability to buy it for themselves.
States can request adjustments for the next one to three years. Though technically the law allows for adjustments beyond then, it's unclear whether they would be necessary: In 2014, the law will begin requiring almost all Americans to buy insurance - providing insurers selling individual plans with a considerably healthier, more constant pool of customers.
Until then, Maine has requested that the medical loss ratio required of its individual market plans be lowered to 65 percent. State officials have also asked that the ratio be calculated using the state's own, potentially more expansive, definition of activities that can be counted as improving customers' health.
HHS officials have yet to determine that the state has provided the necessary information in its application. Once they do, it could take up to 40 days for HHS officials to decide whether the adjustment is called for.
HHS has not set a deadline by which states must request an adjustment for 2011. But according to administration officials, because the standard applies starting Jan. 1, as a practical matter, they would expect any additional states to apply as early in the new year as possible.
Jack McDermott, a spokesman for the Florida Office of Insurance Regulation, blamed his state's delay on the Obama administration.
Florida anticipates requesting an adjustment, he said. But "HHS did not issue the rules on what would be required [for the application] until Nov. 22."
McDermott added that the data state officials are now being required to gather is "voluminous" and said there was reason to worry that even if Florida is ultimately granted an adjustment, the news might not come soon enough to prevent insurers from pulling out of its individual market.
However, insurance regulators in several other states that had previously indicated they would seek waivers said HHS's timing was not a concern. Rather, they are unsure whether an adjustment is wise.
"I'm between a rock and a hard place," said Mississippi Insurance Commissioner Mike Chaney.
Chaney said he worries that if the 80 percent standard is applied, insurers will no longer pay fees to brokers who sell their plans. The broker fees are counted as an administrative expense and currently eat up a large chunk of premiums for many individual market plans.
Yet, without brokers to help consumers navigate the system, Chaney said, "you have consumers trying to buy a health-insurance policy that they might not truly understand, and they may not get the coverage that they actually need."
However, Chaney said, the individual market in Mississippi is dominated by three large players that might be able to meet the 80 percent standard.
"I've got to be certain that they don't take advantage if I get a waiver," he said.
Iowa Assistant Insurance Commissioner Angela Boston was also noncommittal. Her state was one of four that went so far as to write a letter to HHS earlier this year officially requesting a waiver from the medical loss ratio standard. However, Boston noted that the letter was sent as HHS regulators were still crafting the fine print of the provision.
"Our main concern at the time was to make sure that HHS was aware that states had concerns about the impact and that HHS should be sensitive to that," she said. "That was the purpose of sending the letter."