The National Association of Insurance Commissioners observed the 6-month anniversary of the signing of the Affordable Care Act by posting a medical loss ratio model draft.

The National Association of Insurance Commissioners observed the 6-month anniversary of the signing of the Affordable Care Act by posting a medical loss ratio (MLR) model draft.

The NAIC, Kansas City, Mo., created the 32-page Affordable Care Act Medical Loss Ratio Rebate Regulation draft to implement the minimum MLR provisions in the Affordable Care Act, the federal legislative package that includes the Patient Protection and Affordable Care Act (PPACA).

The provisions will require 85% of large group premiums and 80% of individual and small group coverage premiums to be spent on medical care and quality improvement activities. Carriers and plans that spend too little are supposed to pay rebates.

The provisions will take effect for health plan and policy years starting on or after Jan. 1, 2011.

NAIC panels have been engaged in vigorous discussions about the definitions to be used in the MLR calculations.

The draft includes, for example, a 189-word definition of “earned

premium.” The definition includes “any fees or other contributions associated with the health plan, the change in unearned premium reserves, and the change in reserves for rate credits.”

Parties that assume policies from other parties through assumption reinsurance will include directed earned premium from the assumed entity as if the premium revenue was its own directed earned premium.

If “a block of business was subject to indemnity reinsurance and administrative agreements, effective prior to the effective date of [the Affordable Care Act] (March 23, 2010), such that the assuming entity is responsible for 100% of the ceding entity’s financial risk and takes on all of the administration of the block, then the assuming entity and not the ceding entity should report the reinsured earned premium as part of its medical loss ratio rebate calculations,” according to the draft text.

The rules for handling federal and state taxes, licensing fees and regulatory fees have attracted a fair amount of attention, and the draft gives definitions for those terms and other terms in an appendix. The description of how to handle federal and state taxes and fees is about 2 pages long.