State insurance regulators are continuing to tinker with the rules health insurers will have to follow when complying with the new federal minimum medical loss ratio (MLR) rules.
The MLR subgroup — a unit of a unit of a task force at the National Association of Insurance Commissioners — has been looking at questions about how to reconcile the MLR rules with other new rules created by the Patient Protection and Affordable Care Act of 2010 (PPACA).
The subgroup has, for example, been talking about how health insurance MLR calculations will fit with PPACA health insurance risk-management mechanisms.
The subgroup has posted documents relating to the relationship between risk-management mechanisms and minimum MLR rules on the Health Actuarial Task Force section of the NAIC’s website.
The PPACA MLR provisions already require non-grandfathered health insurers to spend 85 percent of large group revenue and 80 percent of individual and small group revenue on health care and quality improvement efforts.
Insurers that miss the mark must send customers rebates.
Starting late in 2013, health insurers are supposed to start selling individual coverage on a guaranteed-issue, mostly community-rated basis. Insurers will be able to take an applicant’s age into account when pricing coverage for that applicant but not the applicant’s state of health.
PPACA drafters created three risk-management mechanisms to try to help health insurers cope with the dramatic changes in underwriting rules:
- A temporary “risk corridor” program that will be run by the U.S. Department of Health and Human Services (HHS) is supposed to move cash from plans with medical expenses that are much lower than expected to plans with medical expenses that are much higher than expected.
- A temporary reinsurance program to be run either by HHS or state regulators is supposed to collect payments from the insurers in a state’s market and use the cash collected to support insurers that end up covering a high number of enrollees with high medical costs.
- A permanent risk-adjustment program to be run either by HHS or state regulators is supposed to use specific enrollee health information to shift cash from plans with unusually low-risk enrollees to plans with unusually high-risk programs.
The MLR subgroup
The MLR subgroup has been considering MLR/risk-management questions such as, “Should the reporting of MLR rebate calculations for 2014-2016 be modified to allow reflection of reinsurance, risk corridor payments and risk adjustment payments and credits?”
The subgroup also has been responding to a related question about whether “risk-adjustment payments (to high risk plans) and charges (from low risk plans)” should be reflected in MLR calculations.
Subgroup members have been thinking about having plans include the risk-adjustment payments and charges in the MLR calculations, according to a draft summary of their deliberations.
That proposal “was originally created to avoid a situation where payments from the risk adjustment program would be transferred from the company to a rebate payment, thus partially defeating the purpose of the program,” the subgroup said in the summary of its work. “The sub-group sees no way to establish a methodology to prevent this while still complying with statute.”
The subgroup has noted in discussions of the proposals that insurers will have to reconcile the PPACA risk-management mechanisms with one another as well as with the MLR calculations.
The subgroup seems to be suggesting that the insurers may have to proceed in the following order when using their operating results to come up with MLR figures:
- Apply the PPACA reinsurance payments and charges.
- Apply an estimate of the PPACA risk-adjustment program payments and charges.
- Apply the PPACA risk-corridor program payments and charges.
- Perform the PPACA MLR calculations.
One problem with applying the rules in this order is that insurers may have trouble getting accurate numbers at the right time, the subgroup said.
To run the risk-management program, for example, program managers will need health status information on each enrollee, and regulators will be going back in later to audit the health status information.
When regulators audit the 2014 risk-adjustment data and calculations, that could lead to significant changes in 2015 risk-management values, the subgroup said.
When health insurers are putting their financial statements together, they will probably have to estimate the effects of the risk-adjustment mechanism, the subgroup said.
“In addition, companies will not be able to accurately estimate the accrual for risk corridors for use in MLR calculations,” the subgroup said.
Federal officials have suggested that the reinsurance mechanism have no effect on the risk-adjustment mechanism, but that the PPACA reinsurance mechanism and the PPACA risk-adjustment mechanism will affect risk-corridor program calculations.
The PPACA risk-corridor program managers must wait to see the effects of the reinsurance and risk-adjustment mechanisms because an insurer “must attribute reinsurance payments and contributions and risk adjustment payments and charges to allowable costs for the benefit year with respect to which the reinsurance payments and contributions or risk adjustment calculations apply,” the subgroup said, quoting from a bulletin provided by HHS officials.