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PPACA: NAIC Panel Ponders Loss Ratio Details

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A National Association of Insurance Commissioner (NAIC) subgroup is getting into the finer details of implementing the Patient Protection and Affordable Care Act (PPACA) minimum medical loss ratio provisions.

PPACA, part of the federal Affordable Care Act package, will require insurers to spend 85% of large group health insurance premium revenue and 80% of individual and small group health premium revenue on health claims and quality improvement efforts.

The NAIC, Kansas City, Mo., is developing rules for calculating loss ratios and for compensating enrollees with rebates when the minimum MLR standards are violated.

Members of the NAIC’s PPACA Actuarial Subgroup of the Accident and Health Working Group held a conference call Monday that focused on issue resolution documents (IRDs) relating to questions that might arise when health insurers have too little claims data for the data to be considered actuarially “credible.”

The panel agreed to move consideration of three IRDs forward by classifying the IRDs as “preliminary resolutions” and formally exposing them for public comment.

IRD016 concerns treatment of reductions in rebates made to adjust for the fact that a carrier’s experience is not considered credible.

IRD029 proposes that new businesses with less than 12 months of experience should be included in the MLR calculation.

IRD071 proposes that rebates should be paid only to enrollees who were present during the last experience year.

Some panel members want insurers to defer rebate adjustments made due to lack of credible experience and others want the rebate adjustments to be forfeited.

“The issue is that credibility adjustments can be thought of in some sense as a loss to consumers,” Gerland Lucht, a subgroup member from Illinois, said during the conference call.

As experience develops and as a line of business gains credibility, it is possible that the rebate adjustment will go away on its own, Lucht said.

Lucht said he favors the idea of including business with less than 12 months of experience in MLR figures.

“The issue here is credibility,” Lucht said. “Deferring business with less than 12 months of experience is not helpful if the block to begin with is not credible.”

America’s Health Insurance Plans (AHIP), Washington, told the subgroup in a comment that new customers’ claims tend to be lower because the insureds are still paying out-of-pocket maximums and deductibles.

Subgroup members agreed to consider and attach AHIP’s comments when IRD029 is exposed this week, but they said they still plan to include business with less than 12 months in the MLR calculation.

“Usually the portion of a block of business that has less than 12 months of experience is small,” Lucht said. “I just don’t think experience in the first 12 months is relevant for this issue.”

The subgroup will be continuing to work on these IRDs and others next week.


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