Compensating individual health policyholders who pay more for coverage than the new federal laws permit could be tricky, an insurer executive says.

Brian Reese, a vice president and senior actuary at Assurant Health, Milwaukee, a unit of Assurant Inc., New York (NYSE:AIZ), has written about the issue in a comment letter submitted to an actuarial subgroup at the National Association of Insurance Commissioners, Kansas City, Mo.

The subgroup is helping the NAIC implement the Affordable Care Act, the federal legislative package that includes the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act.

One PPACA provision, a minimum medical loss ratio provision, would require individual and small group health insurers to spend at least 80% of premium revenue on health care and quality improvement activities, and large group insurers to spend at least 85% on health care and quality improvement activities.

Carriers would compensate for medical loss ratio miscalculations by providing rebates.

Subgroup members are working to come up with strategies for coming up with “credible,” or actuarially convincing, pools of claims data.

Subgroup members are talking, for example, about the idea of having insurers deal with “blocks of business that are not fully credible” by pooling large claims across all states, or across “non-credible states.” Insurers also could use methods that involve calculation of a 4-year or 5-year moving average, according to an “issue resolution document.”

To make cross-state pooling work, the states involved “would need to be identical for all years in the experience period, which may be difficult to achieve in practicality,” Reese says.

Minimum medical loss ratios might vary from state to state during a transition period, and “this cross-state pooling may be introducing a level of complexity that will render the calculation of the [medical loss ratio] rebate extremely difficult to understand for consumers and regulators as well as for health plans,” Reese writes.

Using 4 or 5 years of data would be challenging for many of the same reasons, and that strategy would create “the need to track individuals/group information for extended periods of time, possibly years after they may have terminated coverage,” Reese says.

“This would create additional administrative burdens on carriers to maintain addresses and attempt to locate individuals, adding more expenses during times when efforts will be necessary to reduce expenses,” Reese says. “This will be extremely problematic in the individual market as name changes, address changes, member terminations/deaths may occur often over a longer period such as 3 – 5 years.”

Taking as long as 5 years to send an individual or group a rebate “may create difficulty in creating linkages to the health coverage and the rebate received,” Reese says.