Insurers and consumer groups are at odds over how insurers should treat tax payments when computing medical loss ratios (MLRs).
Tim Jost, a law professor who helps represent consumer interests in National Association of Insurance Commissioners (NAIC) proceedings, argued in July that insurers should subtract only taxes on health insurance premium revenue, not taxes on investment income or other types of revenue, when computing the revenue figure used in MLR calculations.
“Congress meant that taxes on health insurance premium revenue are to be subtracted,” Jost writes in a comment letter.
Letting insurers subtract other types of taxes from the MLR revenue figure “obviously makes no sense,” Jost says.
Bill Weller, who is representing America’s Health Insurance Plans, Washington, and Randi Reichel, a lawyer, say the NAIC MLR rules should let insurers deduct all state and federal taxes the revenue figure used in MLR calculations.
The minimum MLR section of the Affordable Care Act, the legislative package that includes the Patient Protection and Affordable Care Act (PPACA), “is clear that ‘federal and state taxes’ are to be deducted from the denominator of the MLR,” Weller and Reichel write in a comment letter.
“If Congress had intended that only certain taxes be deducted it could, and would, have specified which taxes those should be,” Weller and Reichel say. “It did not choose to do so. It is incorrect as a matter of law, and as a matter of policy, for the NAIC to attempt to delve into congressional intent when the language does not raise a question of what that intent is.”
The discussion is part of talks at the NAIC, Kansas City, Mo., regarding implementation of the Affordable Care Act minimum MLR provisions.
The provisions will limit total expenditures on medical costs and quality improvement efforts to 80% for individuals and small groups, and to 85% for large groups.
All other factors being equal, the smaller a health insurer’s revenue total is, the higher its MLR will be.