Draft MLR rule does not capitulate to all insurer demands

The National Association of Insurance Commissioners issued a draft proposal of final medical-loss ratio rules on Thursday that would determine spending rules for health insurers, CaliforniaHealthline reports.

The healthcare reform law requires insurers' medical care spending for individual and small-business plans to equal at least 80 percent of the premiums collected. For large-company health plans, medical care spending must be at least 85 percent of the premiums collected.

The medical-loss ratio, or fraction of premiums that insurers spend on medical care, tells insurers what is left over for administrative expenses and profits. Should medical spending fall below certain thresholds, health insurers will have to pay rebates.

Regulators at the NAIC hope to finalize the rules at an Oct. 21 meeting. Then the Department of Health and Human Services will be the last to weigh in, the Wall Street Journal reports.

Although the rules may still change, it's likely insurers will have to adjust their business models, notes the WSJ.

MLRs vary widely even within the same company. The Kansas insurance commissioner, who heads up NAIC's health and managed-care committee, told the WSJ, "There's a real concern that [insurers] are not going to meet these guidelines, at least not initially."

One positive development for insurers is that the draft plan would allow them to deduct nearly all federal and state taxes from the total premiums before they calculate their MLRs, Reuters reports. That would boost their medical-cost ratios, because it would shrink the denominator.

Although the industry lobbied for anti-fraud and "utilization review" spending to count as medical expenses, the draft document didn't include those changes. But it permits some non-medical costs, such as spending on wellness activities to count as medical expenses.

"Insurers can lobby for more, but I don't think anyone's got anything to complain about," said Robert Laszewski, president of healthcare consulting firm Health Policy & Strategy Associates.

To learn more:
- see the medical-loss ratio draft guidelines from the National Association of Insurance Commissioners
- read the Reuters article
- here's the CaliforniaHealthline story
- read the Wall Street Journal story

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