What may sound like a wonky insurance industry term is poised to have a real impact on health care consumers through the health care reform law. Recent regulations and developments around implementation of the medical loss ratio (MLR) standards have been in the news both nationally and in Wisconsin in recent weeks and months.
The Affordable Care Act (ACA) ensures that insurance companies are spending 80 to 85 percent of premium dollars on medical care and health care quality improvement – rather than administrative costs and profit. This past Friday, the final rule from the federal Department of Health and Human Services (HHS) regarding the MLR provision of the ACA was released. Before the release of this rule, the insurance industry, agents, and brokers lobbied hard to have broker fees exempted from the calculation of administrative costs. In fact, the National Association of Insurance Commissioners took a controversial and divided vote on November 22nd, passing a resolution calling on Congress and HHS to exempt insurance agent’s commission from the administrative cost when determining the MLR. In a big win for health care consumers, the final rule issued Friday by HHS keeps agent fees and commissions in the MLR calculation of administrative costs. This will ensure that the intent of the MLR provision is realized – so premium growth slows and consumers receive rebates from insurers who do not bring down administrative costs. The rule also ensures that rebates to consumers are tax-free.
The remaining concern about MLR rests in a provision allowing states to request waivers or phase-ins of the MLR 80 and 85 percent standards. States may be granted a waiver if they can show that immediate implementation of this provision would hurt consumers. Wisconsin’s Insurance Commissioner has requested an exemption from the MLR regulation, with a three year phase in – 71% in 2011, 74% in 2012, and 77% in 2013. However, nearly two-thirds of the insurers in Wisconsin are well above the necessary 80% MLR, with the average rate for Wisconsin HMOs at 88.7%. Even though most insurers in our state won’t be affected, Wisconsin consumers are estimated to receive about $14 million in rebates under the full implementation of the MLR provision – which would be in jeopardy if a waiver were granted. The request for a waiver suggests that Wisconsin’s Insurance Commissioner seems to be more concerned with the profits of a select few insurance companies, and not the general welfare of Wisconsin consumers.
Rejection of Wisconsin’s MLR waiver is looking more likely after HHS decided in late November to reject MLR exemption waivers requested by Indiana and Louisiana. HHS said that the states were able to meet the MLR standard, and that consumers would be better off if the exemption were not granted. The HHS decision appears to be good news for Wisconsin consumers because it allows the health care reform law to perform the intended function of ensuring that an unreasonably large share of our insurance premiums isn’t being swallowed up by administrative costs and profits.
Sara Eskrich
