The Insider: Trench Warfare

  ·  Health Policy Hub

While political and legal attempts to repeal the Patient Protection and Affordable Care Act may draw the most attention, the real success or failure of the law will play out in hundreds of regulatory battles that will take place largely out of the public eye.

One of the first such battles is the definition of “medical loss ratio” (MLR).  The MLR is the percentage of premium dollars that a health insurer is required to devote to the medical care of its enrollees.  Under PPACA, individual and small group plans must spend 80 percent of premium dollars on medical care (as opposed to advertising, administration and profit), and larger groups must spend at least 85 percent. Failure to meet these required thresholds would trigger a rebate to policy-holders.   However, PPACA allows expenditures designed to improve quality of care and state and federal taxes to be exempted from the MLR calculation.

Industry representatives are not satisfied with these qualifiers, and are lobbying for special transition rules for those carriers that will have trouble meeting the MLR standard, warning that insurers may choose to exit the market rather than pay rebates.  Some are also arguing for special laxer rules for small carriers or for certain types of insurance.  They claim that small carriers have higher administrative costs but lower premiums for comparable coverage, and could be driven from the market without special consideration.

If it is indeed the case that small carriers have lower premiums (despite higher administrative costs), it is likely because these small insurers are underwriting more aggressively—a practice they will be forced to discontinue in 2014.  There doesn’t seem to be any good reason now to allow them to keep cherry-picking healthy enrollees who they will then be able to hang onto in “grandfathered plans” once reform fully kicks in—making the risk pool worse in the Exchanges.

The National Association of Insurance Commissioners (NAIC) is charged with developing recommendations to HHS to implement the MLR provision.  NAIC recommendations are expected by June 1.  The extent to which the NAIC (and ultimately HHS) gives in to the special pleadings of the industry will be one early indication of the willingness of state and federal regulators to stand up to special interests as implementation proceeds.

--Michael Miller, director of strategic policy