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California Makes Rate Review Rule Permanent

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The California Office of Administrative Law has given the California insurance commissioner the authority to consider a health insurer’s projected medical loss ratio (MLR) when deciding whether an individual health premium increase request is reasonable.

Dave Jones, the current California commissioner, has been including MLR projections in individual health product rate reviews using an emergency regulation.

The administrative office decision makes the emergency regulation a permanent regulation, Jones says in a statement.

An MLR provision in the Patient Protection and Affordable Care Act of 2010 (PPACA) already requires health insurers to spend at least 80% of major medical revenue on health care and quality improvement efforts.

If health care and quality improvement costs amount to less than 80% of premium revenue, a carrier must compensate individual policyholders by sending them rebates.

The California rule is more strict, because it gives a commissioner the ability to apply MLR standards up front, rather than requiring a consumer to pay premiums for a full year before getting a chance to receive a rebate, Jones says.

Jones issued the MLR emergency regulation in 2010, at his inauguration.

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“Ensuring that more of consumers’ premium dollars go into actual medical care – and not into insurance industry profits and administrative costs – is one of the most important components of federal health care reform,” Jones says.

California law does not give the state’s insurance commissioner full authority to accept, reject or modify proposed health insurance rate increases, but it does give the commissioner the authority to review an increase proposal for errors or to reject an increase proposal that appears to be unreasonable.

Representatives for the California Association of Health Plans (CAHP), Sacramento, were not immediately available to comment.

A representative for the Association of California Life & Health Insurance Company (ACLHIC), Sacramento, Calif., said health insurers have spent more than 80 cents of every premium dollar on health care costs for some time.

The California Association of Health Plans, Sacramento, recently found that California insurers are spending 87 cents of every dollar on health care costs.

But a CAHP representative noted that its members are not greatly affected by the benefit ratio rule because most California managed care plan members have coverage regulated by the state Department of Managed Health Care, not by the state insurance commissioner.