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PPACA: Panel Ponders Initial MLR Calculations

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Insurers may feel a bump when they start implementing the new minimum medical loss ratio rules, a regulator says.

The topic came up Monday during a teleconference on implementation of the minimum MLR section of the Patient Protection and Affordable Care Act (PPACA) that was organized by an arm of the Accident and Health Working Group at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo.

The working group arm, the PPACA Actuarial Subgroup, held the session to review several minimum MLR issue resolution documents (IRDs).

Beginning in 2011, the minimum MLR provision in PPACA, a component of the new federal Affordable Care Act, will require health insurers to spend 85% of large group premium revenue and 80% of individual and small group premium revenue on health claims and quality improvement activities or else pay rebates to policyholders.

Insurers will use a 3-year average of medical loss ratios when calculating rebates, PPACA Actuarial Subgroup members say.

The subgroup is helping the NAIC develop rules for calculating loss ratios and for compensating enrollees with rebates when the minimum MLR standards are violated.

One of the IRDs the subgroup discussed, IRD071, proposes that rebates should be paid only to enrollees who were present during the last experience year.

Another, IRD073, proposes that, in calculating the annual rebate, the ratio developed from the MLR benchmark excess over the results of the 3-year averaging should be applied to the plan year premium from the third year.

During the conference call, health insurer representative expressed concern regarding these proposals.

One insurance company representative asked how MLR calculations would reflect rebates paid in one of the prior years.

Gerald Lucht, a subgroup member from Illinois, said that, for the first-year rebate calculation, the calculation would be done for that year only and then calculations would move onto the next year.

Another insurance company representative said there is an inconsistency in IRD073 with how the 3 years of information are used and then applied to only 1 year.

A third participant, who was affiliated with America’s Health Insurance Plans, Washington, echoed this concern and said that “something needs to be done”

in the first couple of years of calculating rebates.

Once insurers get into the 3-year averaging, he said, a health insurer with a loss ratio of 80% for 2 years, for example, and then 77% for 1 year would pay a rebate based on the average of those 3 years. “I can understand that situation,” he said. “But, what I don’t think works is a calculation for 2011, 2012, and 2013.”

Lucht agreed that there will be a “bump” when insurers start using the 3-year calculation, and he said the subgroup will discuss this in further detail.

The NAIC subgroup ended up deciding to move consideration of IRD071 and IRD073 forward by classifying the proposals as “preliminary resolutions” and formally exposing them for public comment.

“We’re implementing the [PPACA] law the way it is written,” Lucht said. “I think we’re interpreting the law correctly.”

Basing the MLR calculation on 3 years rather than 1 year increases the credibility of the experience, Lucht said.

The subgroup will resume work on these IRDs and others Thursday.

Steve Ostlund, a subgroup member from Alabama, said he believes the panel will complete the implementation process before the end of summer. “Many of the major issues are either on the table or have already been resolved,” he said.


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