BURGERS AND BRONZE: MORE MEDICAL LOSS RATIO PROBLEMS

PPACA’s medical ratio loss rules continue to generate problems. Mini-med health plans, providing extremely modest coverage with low premiums, have been in the news this past week, with HHS’ announcement that plans offered by McDonalds and other low-wage employers will receive waivers from PPACA’s annual benefit limit provision to avoid potential termination of these plans. Given the need to maintain insurance market stability (and avoid the politically embarrassing contradiction of President Obama’s campaign promise that anyone with existing coverage could keep that coverage), it’s easy to see why HHS Secretary Kathleen Sebelius granted the waivers. However, the annual limit provision is only one of the mini-med problems.

Mini-med plans also run afoul of PPACA’s medical loss ratio rules. Because administrative costs are high compared with premium, even a highly efficient, non-profit mini-med plan will fall below the MLR thresholds. Again, HHS has indicated that it will allow some form of waiver for mini-meds. However, an MLR waiver faces two obstacles. First, the NAIC draft regulations for MLRs are based on reporting by legal entity, rather than specific product, implying that a waiver would somehow have to exclude mini-med data from the entity’s MLR calculation. Second, insurers marketing conventional high-deductible plans may reasonably argue that they also should be granted waivers—why should HHS waive a plan that offers almost no coverage, but not a plan that offers much more generous coverage (but less than needed to pass the MLR test)?

There is another potential MLR problem, but it’s one that may not be apparent until closer to 2014. Starting in that year, insurance exchanges will offer up to five levels of coverage (Platinum, Gold, Silver, Bronze, and catastrophic. The problem is that, if past exchange experience is any guide, the less expensive coverage levels (Silver and Bronze) will be most popular—and that will mean MLR trouble for insurers offering these levels.

For example, at the Bronze level, and assuming that exchanges will, as in Massachusetts, fund their operations through a premium levy of 4-5 percent, insurers will find it almost impossible to meet the MLR threshold of 80 percent for individual plans. Currently, the most efficient large group plans have MLRs of around 88 percent, indicating non-benefit costs of some $600 for typical single coverage (roughly equivalent to PPACA’s Gold level). With the addition of a 4 percent premium levy, non-benefit costs increase to $800, enough to cause almost all Bronze plans and many Silver plans to fail the MLR test. Only if insurers enroll startlingly large numbers at the Gold level will they be able to avoid the requirement to offer rebates—and that’s unlikely to happen.