In 2010, proposed rules were issued and approved by the National Association of Insurance Commissioners (NAIC) for measuring the Medical Loss Ratio (MLR). The MLR is part of the Affordable Care Act (ACA), a law that puts into place comprehensive health insurance reforms that is intended to hold insurance companies more accountable, will lower health care costs, guarantee more health care choices, and enhance the quality of health care for all Americans. The MLR is the amount of every insurance premium dollar that insurance companies have to spend on medical costs or improvements to quality of care. This amount, which has been established at 80 cents (small groups and individual policies) to 85 cents (large group policy holders) of each premium dollar, has been an integral factor in the ACA’s efforts to control health insurance premiums.
The remaining 15 to 20 cents can be used for expenses such as payroll, advertising, overhead and profits that do not directly benefit customers. Companies that fail to meet this test must rebate funds to subscribers. For example, if an insurer collects $100 million in premiums for large-group coverage but spends only $75 million on legitimate medical care, the insurer would have to return $10 million to the policyholders. In 2010, Cigna Healthcare’s medical-loss ratio to date was 82.3% whereas BlueCross BlueShield of Tennessee’s most recently calculated medical-loss ratio from December for both group and individual under-65 plans was 85.3% percent.
The hotly debated topic is what counts as “health care.” The criteria can vary widely from company to company. Individual plans allocate much more of their premium dollars to administrative costs compared to large group plans, according to a study published in April by the Senate Commerce Committee. Proponents of the MLR believe that this will be an ideal way to regulate premium increases and keep insurance premiums lower, while opponents believe that such regulations will discourage insurance companies from investing in administrative services such as information technology and other medical management systems, which could save consumers money in the long run. According to Bob Laszewski, president of consultancy firm Health Policy and Strategy Associates, “This will absolutely have unintended consequences and the consumer will suffer.”
At the last minute the NAIC, backed by the Department of Health and Human Services (HHS), amended the proposal to allow the insurance industry to count marketing campaigns performed in conjunction with state and local public health departments as medical expenses. As a result, insurance companies would be allowed to count their collaborations with public health departments as quality improvements. This means that partnerships between private, for-profit health insurance companies and cash-strapped public health departments for such things as public health campaigns would be included in the expenditures of your premium dollars to improve your health.
Currently, there are few legitimate public-private partnerships. The ones that do exist most often take the form of marketing campaigns which focus on public health issues such as smoking cessation. If this rule stands, industry experts believe the private sector will slowly start to infiltrate public health territory and the following will occur:
- Premium dollars will be spent on marketing campaigns re-classified as “health awareness”
- The legitimate existence and funding for real public health department initiatives will be weakened as the energies of scarce public health staff are used to determine whether particular insurance company campaigns are genuine or not
- Public health campaigns such as cessation of smoking can help insurance companies identify and then “cherry-pick” customers, either excluding smokers from coverage, or charging them more (excess charges remain legal even after new rules take effect in 2014)
The insurance industry is also lobbying to avoid counting investment income, or the taxes they pay on investment income for purposes of calculating the MLR. According to industry experts, these are the taxes that they should be paying to support state and local health departments.
One thing is for certain, Health and Human Services has to certify the NAIC’s recommendations before they take effect. This could entail a long, drawn out struggle. As Americans face a mandate to buy health insurance starting in 2014, consumers want assurance that health care companies will spend their money on medical care.