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Final Rules Don’t Give Relief on Minimum MLR: Mixed Signals from HHS On States’ PPACA MLR Waivers

When the national health reform bill passed, many insurers and state insurance regulators reacted with chagrin to the 85 percent large group and 80 percent individual and small group minimum medical loss ratio (MLR) requirements in the act. They argued that the minimum MLR thresholds would destabilize these markets and lead to insurers exiting these products. Of most concern was the individual market segment.

The federal government issued its final regulations today (December 2, 2011) and made few demonstrable changes to address the concerns. On the positive side, it let stand its earlier recommendation that so-called “good spend” on quality and true care management counts in the MLR calculation. On the negative side, it actually added a consumer reporting requirement that will add to insurers’ costs. It also rebuffed efforts by brokers/agents, underwriters, insurers and other parties to segregate or otherwise discount agent/broker commissions (which are a large part of the sales and enrollment process for individual coverage) from the minimum MLR calculation for individual plans.

The national reform law also allows the federal government to waive or adjust the threshold for individual and small group markets (but not large group) for a period of time and many states immediately began applying for a papal dispensation from the rules. Thus far, 17 states have applied for waivers. The federal government has given thumbs up to seven states (Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia, and Wisconsin). It has turned down four requests (North Dakota, Delaware, Indiana, and Louisiana). Six states are in various stages of review, including big states like Florida, Michigan, Texas, and Ohio (North Carolina and Kansas round out the group).

The Government Accountability Office (GAO) just released a study that sheds more light on the potential impact of the minimum MLR issue. The GAO says that 64 percent of all insurers covered by the mandate would have met the spending rules in 2010. However, if you dig a little deeper, the picture changes– About 77 percent would have met the mandate in the large group market and about 70 percent in the small group market. But, just 43 percent would have met it in the individual market. Therein lies the rub.

The GAO reports that 85 percent of the enrollees are in the large or small group markets, with just 15 percent in the individual marketplace. But that 15 percent is extremely important and has been slated to be one of health reform’s cornerstones of covering the 36 million uninsured. The blueprint calls for half to be covered through the Medicaid expansion and the vast majority of the remainder through individual coverage in the subsidized state Exchanges.

So the minimum MLR will have far-reaching implications on individual coverage in many states and the future of reform. For example, because of the denial in Indiana, big insurers Cigna and Aetna have announced they will exit the individual market there, as will a number of other insurers.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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