The final regulations that implement a federal medical-loss-ratio standard for health insurers generally drew praise from insurers and provider advocates, but critics warned about some of the unintended consequences of mandating how much premium revenue insurers must spend on direct patient care.
Critics hit lack of fraud credit in MLR regs
The creation of a first-ever federal medical-loss ratio-standard, which was required by the Patient Protection and Affordable Care Act, is intended to reduce spending by insurers on non-healthcare items. Supporters of setting a standard, including the Obama administration, said insurers' spending on business expenses such as administrative costs, employee salaries and dividends to shareholders were large drivers behind insurance costs rising faster than general inflation in recent years.
The final medical-loss-ratio regulations will require new individual and small group-market insurance plans to spend 80% of premium dollars on medical care and healthcare quality improvement, with the remainder allowed for administrative costs. The medical-loss ratio for large group-market plans is 85%. The regulations and standards require insurers to begin reporting 2011 medical-loss-ratio data in June 2012. Insurance companies that fail to meet the standards must provide the difference in rebates to their customers, beginning in August 2012.
In determining the final regulations, HHS rejected some insurer-requested changes but accepted some others regarding what counts as healthcare costs and what counts as administrative costs. For example, the regulations recognized some of the costs associated with modernizing the medical claims coding system “as activities that improve healthcare quality.” But regulators refused to include either insurers' anti-fraud efforts or all costs associated with implementing ICD-10 codes on the health expenditures side of the medical-loss-ratio equation.
“We believe health plans' programs to prevent and combat healthcare fraud should be given similar consideration” as other health costs, Karen Ignagni, president and CEO of America's Health Insurance Plans, said in a written statement.
Regulators defended their treatment of fraud-reduction efforts under the medical-loss-ratio rule as consistent with the position of the National Association of Insurance Commissioners. However, Kansas Insurance Commissioner Sandy Praeger, a Republican, said she and other commissioners were concerned that the medical-loss ratio regulations could lead insurers to reduce their anti-fraud spending.
“We know that 20 to 30% of healthcare spending is unnecessary and a lot of that is fraud,” Praeger told Modern Healthcare. “Also, there are a lot of anti-fraud efforts that should be considered quality improvement,” including blocking unscrupulous providers from providing unnecessary services.
Such private insurer spending is why private insurance plans have lower rates of fraud than public health plans, which spend little on anti-fraud programs, said Grace-Marie Turner, president of the conservative-leaning thinktank Galen Institute.
Another aspect of the final regulations that has garnered widespread attention in the healthcare sector was regulators' decision to leave insurance brokers' cost as an administrative cost rather than a healthcare cost that would count toward the 80% or the 85% standard. Critics of brokers said they add no health value and simply add another cost to insurance plans, but broker advocates had argued that they sell and provide ongoing support of health insurance plans for small businesses.
“Oftentimes for companies in the small-group market this agent is basically their HR person,” Praeger said.
The refusal of federal regulators to carve out an exemption for insurance agents was assumed by insurers because it also was left out of the proposed regulations published in December 2010. And insurers already have started to slash their agent fees—whose incomes average $44,000—by up to 50%, said Diane Boyle, vice president of federal government relations for the National Association of Insurance and Financial Advisors.
Boyle argued that some of the agents' work could be considered part of providing healthcare assistance because, for instance, they educate beneficiaries about the range of preventive and wellness services for which they are eligible but are frequently unaware.
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.