Commissioners consider solvency related to MLRs

June 1, 2010

This month keep an eye out for the National Association of Insurance Commissioners recommendations to the Department of Health and Human Services on how health insurers might calculate their MLRs to satisfy the new regulations.

The new rules under the Patient Protection and Affordable Care Act that regulate your medical loss ratio (MLR) allow the inclusion of quality initiatives when adding up your care costs. While that establishes one compliance detail, it also brings up questions about several others, such as, what does the law consider a quality initiative?

This month, keep an eye out for the National Association of Insurance Commissioners (NAIC) recommendations to the Department of Health and Human Services on how health insurers might calculate their MLRs to satisfy the new regulations. The law specifically calls for a minimum 85% MLR for large group markets and 80% for small group and individual markets but doesn't define what constitutes each of those. NAIC will offer definitions soon.

"This is a paradigm shift for accounting and reporting of the healthcare business," Litwinski says.

Historically, health plans might have calculated MLRs on a regional basis, but she predicts the final guidance will require state-by-state calculations reported to the federal government.

"Thirty-four states have some guidelines for MLR but it appears this will preempt the calculations that have historically been made," she says. "We're moving to a federal calculation of MLR."

NAIC SAFEGUARDS SOLVENCY

You might be concerned that federal involvement in how incoming premium dollars can be spent will essentially normalize plans' profitability. In the past, one bucket of business with low profitability could be offset by another, more profitable bucket of business. Not so anymore. Losses, low profits and modest profits will keep you under the MLR ceiling, but higher profits will have to be given back to members as rebates.

As a result of the rebate provision, some small plans or business lines could be in danger of shutting down altogether. Litwinski says that reality isn't being ignored.

"Solvency has been discussed, and they are aware of the possibility," she says. "NAIC is diligently looking at some safeguards as part of the MLR to prevent that from happening."

NAIC truly has its hands full. There's a long list of MLR-calculation questions that its committees are trying to answer, such as the definition of a "plan year" as it relates to reporting and rebate requirements and how common statistical fluctuations should be considered. Currently, the statistical credibility of a bucket of Medicare-supplement business is considered in that market's refund formula, so there's hope.

Litwinski says she's optimistic about the new healthcare marketplace, and that it's not too late for you to speak up about MLRs.

"The most important aspects of the MLR calculation will be to provide input now to regulators and HHS on quality-improvement costs," she says. "It's still a fluid process at this point."

Julie Miller is editor-in-chief of MANAGED HEALTHCARE EXECUTIVE. She can be reached at julie.miller@advanstar.com