Apparently, it’s in the blogger code to preface all discussion on the formerly-arcane issue of health insurers’ “medical loss ratio” (MLR) with a comment on the term. It does always strike me as odd that, from an insurer’s accounting point of view, paying for medical care for the members is considered a loss. Isn’t that what they’re there for?
But the MLR issue is very real. This key definition tells consumers and regulators how much of a health care premium is being spent on medical and medical-related expenses and how much is being spent on administration, fees and profits. Under the Affordable Care Act (ACA), federal health reform, plans are required to give rebates to customers if they spend too much of their revenue on non-health spending. It has been estimated that if insurers had to use the new definition for MLRs for 2009, rebates would have totaled more than $1.9 billion. For Massachusetts, Chapter 288 of the Acts of 2010, the newly minted small group health insurance cost containment law, requires our carriers meet a MLR standard of 88% next year and 90% thereafter, or face presumptive disapproval of their rates.
So the definition of MLR – what’s medical care, what’s not – is critical to making sure health plans provide good value.
Round one for the federal MLR definition is complete. The National Association of Insurance Commissioners (NAIC), as required under the ACA, just approved its MLR definition for 2010.
One key issue is over what is quality improvement. Plans can count spending “to improve health care quality and increase the likelihood of desired health outcomes” as medical benefits. A battle has raged over the past few months as the NAIC has parsed out what actually improves quality from what insurers have argued improves quality (carriers have requested computer claims system upgrades, taxes and fees be considered quality improvement). Caught up in the middle of this battle are consumers and employers- who want value for their health care premiums. Brokers entered the fray too, wanting their commissions to be excluded from administrative expenses.
This battle reached an apex last weekend in peaceful Seattle where everyone anxiously waited to see if the last-ditch efforts by some ‘interested parties’ would prevail. The tension at the meeting was palpable with many constituencies declaring victory in one way or another by meeting’s end (see coverage in Politico, and commentary from the brokers), and others vowing to fight another day.
How consumers will fare under this definition remains to be seen and some states, like Massachusetts, will have to grapple with whether they will use this definition. It is up to DOI, with the assistance of DHCFP, and many stakeholders, to determine what constitutes our MLR definition and the federal definition provides a base from which to start. It is likely that the carriers will argue that the state should just adopt the federal definition, but that may not be what is best for Massachusetts consumers and employers. Some states, like Maine, have learned a lot about how they structure their MLR review and their definition does not mirror the federal definition.
For now we wait for the federal standard to get certified by HHS and the state to start the process of evaluating what works best for us.