The NAIC is trying to figure out if medical loss ratio (MLR) rebate payments reflected in the numerator prior to 2014 also should be reflected in the numerator in 2014 and 2015, if they represent an incurred rebate for one of the three calendar years in the current year’s MLR calculation.
While a consumer representative opposition said that he does not support the current thinking in the NAIC draft, the health insurance industry does.
IRD14-013 raises the question of which rebates are to be included in the three-year MLR calculations. The issue description addresses whether inclusion should be based on incurred year or payment year. Both the NAIC and the U.S. Department of Health and Human Services (HHS) previously determined that rebates are to be included in the MLR numerator.
The MLR is a financial measurement tool used in the Patient Protection and Affordable Care Act (PPACA) to make sure insurers are spending enough on enrollees. If an insurer uses 80 cents out of every premium dollar to pay its customers’ medical claims PLUS activities that improve the quality of care, the company has an MLR of 80%. An MLR of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions.
America’s Health Insurance Plans (AHIP) says in a letter to the NAIC that it doesn’t see the rationale for expanding the scope of IRD14-013 to deal with other options for including the rebates paid.
AHIP wants the rebates included in the numerator over the three years (incurred), according to what it apparently purports in a document submitted to the NAIC’s MLR Discussion Subgroup of the 18th Health Care Reform Actuarial (B) Working Group. AHIP and the industry were unavailable for further explanation of their position.
AHIP said in the letter that it intended what is said could be a possible earlier misinterpretation in its June 27th letter, which may have mistakenly expressed a desire to change methods.
“Our intent was to note that if rebates, and other experience rating credits, were not included in the numerator, then standard statutory accounting would require them to be deducted from the denominator, so that complete exclusion…does not seem to be a reasonable treatment,” a consultant to AHIP wrote. For drafting the AHIP position, the trade association hired Omega Squared consultant William C. Weller.
Since it went into effect in January 2011, the MLR has prompted most insurance companies to slash the commissions of insurance agents and brokers, say agent groups. The MLR has publicly split with the NAIC on occasion in its approach to dealings with the HHS, which oversees it.
The MLR Subgroup is looking at how rebate payments in years before 2014 will effect the MLR calculation in subsequent years in draft paper IRD14-013.
The MLR Subgroup wrote that to “avoid a situation where an issuer pays a rebate based upon multiple years of experience where a rebate has been paid previously, the numerator of the MLR formula includes previous rebates paid for the last two previous years included in the formula.”
For example, in the 2012 reporting years MLR calculations (done in 2013), an issuer will include the rebates paid in 2012 from the 2011 reporting year in the numerator if the 2011 and 2012 experience is combined.
The document in opposition, written by consumer advocate and Washington & Lee University School of Law Professor Timothy Jost, had submitted a table, showing what he believes is the right cumulative MLR occurring when prior year rebates are excluded from the numerator, but the industry called his calculations “highly misleading,” and did its own.
Jost had argued that the approach recommended by IRD14-03 does not achieve the statutory MLR thresholds of 80% or 85% if the insurer prices to achieve an MLR below 80% or 85%, and the NAIC formula won’t produce a sufficient rebate, as required under the Affordable Care Act.