Tag Archives: medical loss ratio

Musings on the MLR

As we ended the summer of 2012, the Obama administration touted one of the more popular aspects of the Affordable Care Act – the requirement that health insurers spend at least 80 cents of every premium dollar on medical care and health care quality (85 cents for large employer groups purchasing health insurance), and if they do not, requiring these insurers to rebate the difference back to subscribers or their employers. According to the Administration, the “80/20 Rule” or the “Medical Loss Ratio (MLR) Rule,” as it alternately known, resulted in 12.8 million Americans receiving directly or indirectly more than $1.1 billion in health insurance rebates this past August. The 80/20 Rule sets this national minimum MLR standard that can only be lowered by a state’s insurance commissioner applying for, and receiving, a waiver from HHS. To receive a waiver, the state has to demonstrate that the application of the 80 percent threshold may destabilize the individual market. These waivers have been hard to come by – at least 18 states and territories have sought HHS approval to permit their insurers to spend below the 80 percent threshold on medical care and quality in the individual and/or small group markets (and therefore to spend more than 20 percent for administrative expenses and profits). Yet HHS has only approved six of these waivers, and most at levels, and for durations, different than requested by the state. On the flip side, states that want to impose a higher MLR threshold – like New York at 82 percent — have done so without federal approval.

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HEALTH REFORM: New Rules Issued on Medical Loss Ratio Requirements

On December 7, 2011, the U.S. Department of Health and Human Services (“HHS”) and the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule[1] (the “Final Rule”) revising medical loss ratio (“MLR”) requirements under the Patient Protection and Affordable Care Act (“PPACA”), as well as an interim final rule[2] (the “Interim Final Rule”) specifically addressing the rebate requirements for non-federal governmental plans (the Final Rule and the Interim Final Rule are collectively the “Rules”).

The MLR requirements, which took effect on January 1, 2012, apply to insured group health plans and individual health plans, including health plans that are grandfathered under PPACA. They do not apply to self-insured plans. Insurers are required to provide rebates to policyholders when their spending for covered plan benefits and quality improving activities in relation to the premiums received falls below the applicable MLR standard for the MLR reporting year. The rebates are determined based on the premium costs of insured coverage, as distinguished from pharmaceutical or manufacturer rebates common to the health care industry. The purpose of the Rules is to reduce the cost of health care coverage by limiting the amount of premium available to insurers to spend on administrative costs and purposes other than the provision of health care services.

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Massachusetts Division of Insurance Rate Disapprovals Show Mixed Results; Implications for National Health Reform

As we await federal medical loss ratio (“MLR”) standards and federal rulemaking by the Secretary of the US Department of Health and Human Services (“HHS”) related to new federal reporting obligations by health insurance issuers of “unreasonable premium increases,” it is helpful to consider recent health insurance premium rating activities and challenges in Massachusetts. In summary, on April 1, 2010, the Massachusetts Division of Insurance (“Division”) disapproved all premium rate increases filed by health insurance carriers for small business and individual customers that exceeded 7.7 percent – which was 150 percent of the New England Medical CPI for 2009. The affected health insurance carriers filed administrative appeals of the Division’s disapprovals of their premium rates. All of these administrative appeals have now been resolved, with mixed results. This client alert summarizes the Massachusetts rate disapproval proceedings and resolutions, the new Massachusetts rate filing legislation, and the implications of the Massachusetts experience for national health reform.[1]

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