Friday, September 24, 2010


Having originally hoped to publish its proposed PPACA medical loss ratio regulations by the end of May, then having slid the date, first to the end of July, then to mid-August, and finally to the “end of summer,” the National Association of Insurance Commissioners released its proposal late yesterday, September 23, the day of the autumn equinox.

Insurers and their lobbyists were quick to complain about the proposed regulations, although they must have been relieved to see that they had succeeded in their goal of getting almost all federal and state taxes and fees excluded from the MLR computation. The NAIC followed a “letter of the law” approach in interpreting the PPACA language exactly as written, rather than accepting the claimed intent of the law’s primary Congressional drafters that only new PPACA-specific taxes and fees should be excluded. The impact of the NAIC interpretation is significant, especially for investor-owned insurers: excluding all taxes but those on investment income will boost their MLRs by some two or three percentage points.

The day before the release of the NAIC’s proposal, three dozen of the state insurance commissioners met with President Obama, HHS Secretary Sebelius, and other administration officials. The key issue: whether the new MLR rules could be gradually phased in, rather than being fully implemented on January 1, 2011. Although PPACA allows the HHS Secretary to grant temporary waivers to states where requiring health plans to meet an 80 percent MLR could result in disruption of the individual market, many NAIC members would prefer much greater flexibility for both the individual and small group markets.

So far, only Maine and Iowa have formally requested waivers of the individual market requirement, but other states are expected to follow. PPACA does not allow for waivers of the 80 percent threshold in the small group market (or the 85 percent threshold in the large group market), and some state commissioners are anticipating that insurers currently offering “affordable” coverage with substantial deductibles and other consumer contributions may be forced to drop such policies (which typically result in lower MLRs) or leave the market altogether, leading their policyholders with higher premiums or problems getting insurance. However, the administration has so far given no indication of such flexibility and clearly is unwilling to start weakening the reform law.

Thursday, September 23, 2010


One of the most significant—and hotly debated—parts of the new health care reform law is scheduled to come into effect on the first day of 2011. It’s one that’s likely to impact insurers, employers, and individual consumers.

The medical loss ratio provision, intended to limit the amount of premium spent on other than medical care, will require large group health plans to spend at least 85 percent of premium on medical care and related health quality efforts, and small group and individual plans to spend at least 80 percent. Plans failing to meet these thresholds will be required to offer rebates to enrollees.

The Senate backers of the MLR requirement, notably Jay Rockefeller and Al Franken, obviously hoped that it would force insurers to be more efficient, and specifically to cut their administrative costs and profit. In the case of some insurers, the Senators are likely to be successful, as I noted in an article by Reed Abelson in today’s New York Times, if only by slashing broker commissions. However, as I also remarked to Reed, in other cases the new rule could lead to policy cancellations or even higher premiums.

While most large group plans are expected to be able to meet the new requirements, many small group and individual plans may have problems. In some small states—for example, Maine—there may be only one insurer (or none) whose MLR is above the PPACA threshold. Small group and individual plans will experience most difficulty for two reasons: higher administrative costs, resulting from higher marketing expense per enrollee, and less generous benefits, resulting from the need to offer affordable policies.

Although the regulations for enforcing the MLR provision have not yet been finalized, insurers are urgently trying to figure out how best to deal with the expected requirements, as reported in the New York Times article. In some cases, especially where plans are already close to the MLR thresholds, insurers are working on staff cuts and other expense reductions such as reducing or eliminating broker payments. However, others are considering either abandoning the market or extensively restructuring their coverage offerings. Restructuring coverage to increase benefits—for example, by lowering deductible limits—will increase a plan’s MLR, but will also increase premiums, hardly likely to be popular in the present economy.

So, the bottom line (for the moment) seems to be that some policyholders will gain from the MLR provision (although the gain may not be readily apparent as medical costs continue to grow), while others will find themselves facing higher premiums or needing to seek other coverage.

And those will be the ones that reform opponents will make sure we read about.

Saturday, September 11, 2010


Hot on the heels of the most recent REFORM UPDATE post comes a series of news items reported by Kaiser Health News. If anyone doubted that (a) insurers would fight back against the coverage requirements of PPACA or (b) that those being regulated will always have the advantage over the regulators, or (c) there’s no free lunch, these items should rapidly dispel the illusion.

The Wall Street Journal reports that several insurers, including Aetna and a number of Blue Cross and Blue Shield plans are asking for premium increases ranging from 1 to 9 percent “to pay for extra benefits required under the [new] law.” The increases apply primarily to small group and individual coverage, with large groups escaping so far, either because their coverage already includes PPACA mandates such as no-co-pay preventive care or because they are shielded by PPACA’s grandfathering provisions. The Los Angeles Times reports larger increases in the California individual market, with HealthNet, Blue Cross, and Blue Shield each gaining approval for up to 16 percent premium hikes.

In Texas, meanwhile, Grand Prairie-based National Health Insurance is telling policyholders it won’t renew individual policies. The Dallas Morning News notes that National Health has been experiencing financial problems for some time, but also manages to suggest that reform is to blame ("The cancellation highlights one way the new law is reshaping the health care landscape in North Texas and elsewhere. Some health economists say more small insurers may soon buckle under the weight of the law's mandates...").

And, finally, in Colorado, it’s reported that five insurers will no longer offer health insurance to children whose parents are not also covered by their plans. The Colorado Independent says: “The insurers say offering child policies made business sense when they could just cover healthy kids but that since federal law now requires them to offer insurance to all kids, including kids with pre-existing medical conditions, they are withdrawing from their child-only plans."

Monday, September 6, 2010


The latest Kaiser Family Foundation poll, conducted in August, shows public support for health care reform falling. After two monthly polls in which reform was viewed increasingly favorably, the new poll shows a sharp decline in public backing for the new law.

Kaiser polls in the first couple of months after enactment of PPACA showed more confusion than clear support or opposition, but by June favorable views gained an edge, with 48 percent supporting reform and 41 percent opposed. The July results continued this trend, with opposition falling to just 35 percent, and support continuing to gain, implying that Obama administration efforts to build support were paying off.

The August poll, then, came as a shock to reform advocates. The percentage of those viewing reform favorably slumped to 43 percent, while the unfavorable number rose to 45 percent. Why? Some part of the change can be attributed to growing disenchantment with the White House and government in general, while anyone whose coverage was renewed during the summer saw premium increases that could readily, if not necessarily accurately, be blamed on reform. At the same time, conservatives maintained a barrage of criticisms that appeared to be more persuasive than reform supporters’ promises that better times were coming (but mostly not until 2014).

Is the downward trend in reform support likely to continue? The positive publicity associated with the $250 Medicare D doughnut hole rebate checks and the ending of most pre-existing condition limits for children has faded, but many individuals will gain from other PPACA provisions being implemented this year. Most annual and lifetime benefit limits will be eliminated, children can be added to their parents’ coverage, preventive care will be available to most without out-of-pocket payments, federally subsidized high-risk pools will be created or expanded, and credits will be available for some small businesses. However, whether this collection of goodies will be enough to reverse the public’s unfavorable view of reform remains to be seen.

While it’s clear that reform provisions implemented in 2010 will benefit many, they will have to be paid for, and those changes without specific federal funding will result in premium increases—something that insurers and reform opponents will be quick to emphasize. For all its opposition to PPACA, the health care industry now has the perfect whipping boy for every escalation in costs and—in conjunction with political conservatives—will make sure reform takes the blame for each dollar of increased premium.

Meanwhile, the really major reform provisions remain in the future, with each carrying its own public relations risk. The potential downside of “health care for all” (or, at least, most) is the threat of penalties for those unwilling to obtain coverage (assuming the coverage mandate is not rejected by the courts). The potential downside of the insurance exchanges is that their implementation will be chaotic, at least in some states. The potential downside of enrolling into Medicaid those who cannot afford insurance is that Medicaid is still viewed by most as a welfare program—and most people don’t want to be on welfare.

For all its positives, PPACA merely redistributes the costs of coverage, meaning inevitably that many people will pay more. And—unless reform advocates can be far more persuasive than they have been so far—it will be these folk who drive the unfavorable public view of reform.