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NAIC Votes on Medical Loss Ratios; Insurers Unhappy

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In what was seen as a setback for insurance companies, the proposed rules on the medical loss ratio (MLR) voted by the National Association of Insurance Commissioners (NAIC) on Thursday did not include any insurance-company-proposed amendments. Medical loss ratio is the amount of premiums that must be spent on medical care rather than other company expenses, such as administration and marketing.

The amendments would have made it easier for insurers to hit the MLR targets decreed by the health care reform law: 80% for individual and small business plans, and 85% for plans at large companies. If insurers do not hit those targets, they must pay rebates to customers.

Among proposals that were not adopted were these:

  • Raising the confidence level to 80% from 50%
  • Allowing national, rather than state, aggregation
  • Including broker fees in the loss ratio.

There was much debate particularly over the last; companies and brokers expressed concern that the place of brokers in selling insurance might suffer, as insurers try to cut administrative costs by cutting commissions. However, NAIC commissioners decided they did not have the authority to approve that proposal.

One of the comments filed with NAIC by consumer advocate Timothy Jost, professor of law at Washington & Lee University, stated, “It is clear that Congress intended agent/broker commissions to be counted as administrative costs for purposes of the MLR.” Jost went on to quote Senator Bill Nelson of Florida, a former insurance commissioner, who cited commissions as considered a part of administrative expenses rather than as part of the cost of medical claims.

However, as reported by NU Online News Service, NAIC did send a letter of support to HHS “underscoring the important role agents and brokers play in the sale of health insurance and educating policyholders.”

NAIC’s recommendations now go to HHS for final approval.


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