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States and health plans continue to struggle to implement several key provisions of the Patient Protection and Affordable Care Act (PPACA), including the new Medical Loss Ratio (MLR) requirement. Although PPACA is helping millions of previously uninsured Americans gain access to affordable and high-quality health care, the implementation process is not always seamless. The MLR issue highlights one of the more difficult regulatory hurdles mandated by the new health care reform law. As a result, 17 states have asked the U.S. Department of Health and Human Services (HHS) for additional time to phase-in MLR requirements.
The MLR provision effectively requires health insurers to spend at least 80 percent of the funds they receive in health plan premiums from the individual and small group markets, and 85 percent from the large group market, to provide health care services and to improve health care quality. In effect, this limits the amount health plans can pay for administrative costs. Insurance payors that fail to meet this requirement will have to rebate sufficient amounts to the covered lives to bring their MLR down to the minimum standards.
To add to the pressure, some of the specifics on how to calculate the MLR remain unclear. Of particular interest is the issue of how Brokers’ commissions are incorporated into the calculations, an unresolved topic we will continue to monitor.
Because the MLR provision could have a major impact on group and individual markets in many states, the HHS Secretary is authorized to make an adjustment to the MLR “only if there is a reasonable likelihood” the MLR may destabilize the market. Critics of the MLR have repeatedly warned that implementing these MLR standards all at once, without a phase-in period, could have a disruptive impact for employer-sponsored and individual coverage.
States concerned that insurers may abandon their insurance markets can file for waivers of the implementation deadline. To apply, the insurance regulator of that state must submit documentation substantiating the negative effects the immediate imposition of the MLR will have on the viability of the state’s individual health insurance market.
To date, 17 states and the territory of Guam have requested that HHS approve a phase-in of their insurance carriers’ MLR requirements. So far HHS has approved the request for the states of Maine, New Hampshire, Nevada, Kentucky, Iowa, North Carolina and Georgia. Requests by the territory of Guam and Indiana, Kansas, Michigan, North Dakota, Delaware, Oklahoma, Wisconsin, Texas, Indiana, and Florida have been denied. A state may appeal HHS’ decision and Florida is one state that has taken such action. However, the decision to deny an adjusted time schedule was upheld. This chart shows how adjustment approvals would impact rebates paid to the public.
The MLR issue must be solved, and quickly. The fallout of the MLR will be financial, as the payout to policy holders could reach $384 million. Further, the risk of disrupting the individual health insurance markets could lead to insurers leaving the market. Obviously insurance regulators were sufficiently concerned about the viability of implementing MLR provisions in their markets to file these requests for additional time. As with so much of PPACA, the true impact remains to be seen.
Stay tuned to find out how the MLR debate plays out inside the Capital Beltway. Please monitor www.benefitmall.com and www.HealthcareExchange.com for further developments.
The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.
Vice President of Government and Carrier Relations
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