Our sources at the National Association of Insurance Commissioners (NAIC) meeting in sunny Orlando sent an update on the storm brewing over the medical loss ratio (MLR) definition. For those of you new to MLRs, it’s been a long seven months for all of the folks embroiled in the efforts by the NAIC to define what are medical expenses versus profits or administrative expenses. Up until now, the NAIC has carefully worked to adhere to federal law and balance the interests of industry and consumers. But in Florida, those calm skies are growing cloudier as the final vote nears tomorrow morning.
The insurance industry has been pulling out all the stops the past few weeks to undermine the carefully woven fabric of the MLR regulation crafted by the NAIC sub-committees. Their threat to Commissioners: We will pull out of your insurance market and leave your residents without any options – a low blow considering the industry agreed to the compromises made on these very issues just months ago.
Insurance Commissioners are mostly non-committal as they prepare to file amendments to the MLR tomorrow and then have another commissioner-only discussion. The whole definition is up for a vote on Thursday. What should be clear to all is that if the amendments pass, the entire MLR will be meaningless and consumers will not benefit from the potential changes.
First up is national aggregation: Some national insurers are seeking aggregation, or pooling all of their MLRs across state lines for certain insurance markets. This would mean that if an insurer is in a state with a low MLR and another state with a higher MLR – the two numbers would be averaged – leaving consumers in the dark about how much of their premium dollars are spent on health care. This change not only goes against the definition of health insurance ‘issuer’ in the federal law but could also end up making national carriers look better than their local competition.
Second are credibility adjustments for small insurers. Insurers must hit the MLR percentage the required by ACA (85% in large group and 80% in small group and individual markets), or provide rebates to policyholders. There has been much discussion at NAIC about how to protect smaller insurers that may not meet the MLR standard because they only cover 1,000 people and random events (like few filed claims) affect their MLR, rather than their spending on administration and profit.
Previously, everyone agreed to the solution to adjust the MLR of these small carriers – like a handicap in golf – called a credibility adjustment. This is done through actuarial calculations based on a “confidence level.” Basically, the confidence level is the amount of certainty that insurers tried to meet the MLR in good faith, but that random events prevent them from meeting the MLR target. The bottom line is that a higher confidence level means a much weaker MLR standard. The draft regulation crafted by NAIC workgroups allowed a 50 percent confidence level. The issue was heavily debated, and the actuaries agreed that 50 percent made the most sense mathematically and from a policy perspective.
However, there is now a last-minute push to move the confidence level up to 80 percent, and to expand its reach to insurers that cover up to 75,000 people. As an example of how this would play out, every health plan in New York would qualify for a credibility adjustment and would gain between 10 and 25 percentage points on their MLR without actually streamlining anything but maintaining the status quo. Insurers will have a much easier time meeting ACA’s target for MLR, without reducing administration and profit.
Third, counting broker fees in the MLR calculation. There is a move afoot to take broker commissions out of both the premium and the administrative expense component of the MLR. This could be damaging to consumers. Broker fees need to be counted toward administrative expenses and profits.
Right now the NAIC has an opportunity to do something transformative for consumers. Let’s give them the support they need to do so. The vote is tomorrow morning. Take five minutes and call your Insurance Commissioner today. See our latest alert for talking points and more information.
— Christine Barber, Senior Policy Analyst