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PPACA: Minimum MLR Regs Leave Wiggle Room for Mini Meds, Commissions

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WASHINGTON BUREAU – The U.S. Department of Health and Human Services (HHS) is adopting most of the minimum medical loss ratio (MLR) guidelines draft that was approved by the National Association of Insurance Commissioners (NAIC) Oct. 21.

HHS officials say in a preamble to the minimum MLR regulation that they will participate in a working group with NAIC officials to address the effects of PPACA on health insurance agents and brokers, and a subpart of the regulation will create mechanisms for providing relief if the MLR shift seems likely to destabilize a state’s individual health insurance market. Officials say the effect of the minimum MLR standard on agents and brokers will be something they will consider when looking for evidence of destabilization.PPACA

Commenters who responded to an HHS request for information said warning signals of
market destabilization could include “volatility in premium rates, decreases in issuers’ reported capital levels, increases in assumption reinsurance, changes in marketing, increases in complaints from brokers or consumers, declines in insurance coverage, increases in applications to State high risk pools, and significant changes in benefit design,” officials say.

“HHS seeks comments on the approach taken in this regulation and on the issues related to agents and brokers during years leading up to 2014,” officials say in the preamble to the 308-page minimum MLR regulation, which is set to appear as an interim final rule in the Federal Register Dec. 1.

The NAIC, Kansas City, Mo., developed the minimum MLR guidelines to help implement minimum MLR provisions in the Affordable Care Act, the legislative package that includes the Patient Protection and Affordable Care Act (PPACA).

The provisions, on track to take effect Jan. 1, 2011, will require the percentage of health coverage revenue spent on medical care and quality improvement efforts to be 85% for large plans and 80% for individual and small group arrangements. Starting in 2012, insurers that fail to comply with the limits must provide rebates for their customers. HHS officials estimate 9 million Americans could split a total of about $1.4 billion in rebates in 2012. Rebates in the individual market could average $164 per person.

NAIC President Jane Cline, the West Virginia insurance commissioner, says the NAIC worked closely with consumer groups, agents and brokers, the insurance industry, providers, federal officials and others to develop the minimum MLR recommendations for HHS.

“We are pleased to hear that [HHS Secretary Kathleen Sebelius] has certified the work product that was developed by the NAIC without significant modification,” Cline says. “My colleagues and I look forward to working with Sebelius on implementing the MLR so that it ensures consumers receive value for their premium dollars without destabilizing the marketplace.”


Producer groups have warned that the Affordable Care Act MLR rules could add to the pressure on carriers to reduce commissions. Producer groups asked the NAIC to put agent and broker commissions outside the MLR formula, arguing that customers are the ones who really pay the commissions, not the insurers, and that insurers simply collect the commission payments as a courtesy to the customers.

NAIC officials considered providing a “commission pass-through,” but they eventually concluded that they were not sure whether PPACA would let them do so.

Similarly, HHS has not granted a formal pass-through for agents and brokers because, like the NAIC, HHS officials have “remained uncertain as to their legal authority to approve it,” according to John Greene, a vice president at the National Association of Health Underwriters (NAHU), Arlington, Va.

The Independent Insurance Agents and Brokers of America, Arlington, Va., says it is not satisfied with the producer impact working group and transition relief provisions in the new regulations and will be asking the new Congress to step in.

The MLR regulations “will have a devastating effect on the private marketplace,” says Charles Symington, an IIABA senior vice president. “Consumers will be negatively impacted.”

At NAHU, John Greene says he believes the new minimum MLR transition rules should allow most small groups to meet the MLR requirement.

But Greene says NAHU has concerns about the definition of “small group” used in the minimum MLR regulations.

Rather than adopting the Health Insurance Portability and Accountability Act (HIPAA) definition of small group – 2 to 50 lives – HHS has used a definition that includes groups of 1 to 50 lives.

That definition could be subject to further guidance or interpretation, Greene says.

Greene says NAHU also fears that the new HHS regulations decouple state insurance departments’ ability to ask for minimum MLR market disruption waivers for small group insurers from their ability to ask for market disruption waivers for individual insurers.

That issue will have to be clarified, Greene says.

Greene notes that HHS has classified fraud and abuse detection programs as a legitimate expense and allowed for the deduction of federal and state taxes.


Karen Ignagni, president of America’s Health Insurance Plans, Washington, saysKaren Ignagni AHIP members understand that the NAIC developed its MLR recommendations after following a “substantive, collaborative process.”

“These regulations acknowledge the potential for individual insurance market disruption and take a first step toward minimizing such disruptions,” Ignagni says.

But HHS also should acknowledge and address the potential for disruption in the employer-provided coverage market, Ignagni says.

“In addition, more consideration needs to be given to the cost of federally mandated investments in modernizing claims coding and the value of health plans’ programs to prevent fraud,” Ignagni says.


HHS has made at least one noteworthy change to the NAIC MLR guidelines: It has tried to accommodate the needs of sellers of low-cost, limited-benefit “mini med” programs and expatriate policies.

Mini med issuers sell low-cost plans that typically offer just $1,000 to $250,000 in annual benefits. Sales and administrative costs often account for a relatively large share of premium revenue.

Issuers of expat plans offer major medical coverage for people who are living outside their home countries. Because expat coverage providers must deal with the health care systems in many different countries and may offer elaborate, specialized patient support services, they also tend to have high administrative costs.

Applicants for mini med plan annual benefit limit waivers have suggested that 1 million U.S. residents may have mini med coverage, but little information about the mini med market is available, because states do not require separate reporting for mini med experience, HHS officials say.

“HHS is concerned about the possibility of the over 1 million individuals who have coverage through mini-med plans losing that coverage,” officials say.

HHS will be using its authority under PPACA to take into the account special circumstances of different types of plans, officials say.

HHS officials say the department will apply “a methodological change” to mini med plan MLR calculations that will address the plans’ “unusual expense and premium structures.”

In 2011, in the case of a plan with an annual limit of $250,000 or less, “the total of the incurred claims and expenditures for activities that improve health care quality reported … are multiplied by
a factor of two,” officials say. “We believe this factor is sufficient to account for the special circumstances of mini-med plans based on the limited data available.”

Because HHS want to get more information they can use to set the 2012 adjustment factor, they will require mini med plans to report 2011 MLR data on a quarterly basis.

For expat plans, HHS agrees with the NAIC that policies “that are issued by U.S. domestic issuers on forms approved by a State insurance department have special circumstances that should be addressed in this interim final regulation,” officials say. “Therefore, the experience of these expatriate policies is to be reported
separately from other coverage…and the calculation of claims and quality improving activities is to be multiplied by a factor of two…. HHS believes that this factor is sufficient to account for the special circumstances of expatriate plans, while still requiring that they meet the statutory MLR standards.”


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