Guidelines outline spending-disclosure requirements for health insurers

WASHINGTON — Health insurers will be required to make public whether or not they’re spending 80 percent or more of premiums on actual health care costs, officials with the Department of Health and Human Services said today.

Not only that, but they’ll now be required to show their work, detailing everything from total premiums paid to actual spending on clinical services to the monies spent on quality care and required federal and state fees or taxes.

However, in a nod to insurers, HHS carved out several implementation exceptions — though the department stopped short of the blanket phase in the health insurance industry had aggressively lobbied for.

HHS released guidelines on medical loss ratio, originally proposed as an amendment to the health care overhaul law by Sen. Al Franken. Beginning in 2011, the MLR provision requires that 80 to 85 percent of health insurance premiums be spent on things like patient care and quality improvement. If insurers don’t meet those standards, they will have to issue rebate checks to customers. The first checks would be mailed in 2012.

Sen. Al Franken
REUTERS/Rich Clement
Sen. Al Franken

“Implementation of the medical loss ratio provision is a huge step toward ensuring consumers’ premium dollars go to actual health care, not insurance company coffers,” Franken said in a statement. “Many health insurers spend as little as 65 percent of your premiums on care, and the rest goes to enormous CEO salaries, advertising, or wasteful administrative costs. These regulations will hold health insurers accountable and make sure consumers get more value for their money.”

There were few, if any, surprises in the MLR guidelines released today, as HHS broadly accepted suggestions made earlier this year by the National Association of Insurance Commissioners. Their detailed guidelines can be found here. [PDF]

“These new rules are an important step to hold insurance companies accountable and increase value for consumers,” Health and Human Services Secretary Kathleen Sebelius said.

Reform advocates seemed pleased as well.

“These new rules fill a hole in consumer protections in the majority of states,” said Kathleen Stoll, executive director of Families USA. “The new required premium-to-medical care ratio rules were drafted by the National Association of Insurance Commissioners (NAIC) through a long, careful process that was transparent and allowed consumers and all interested stakeholders a place at the table and an opportunity to voice their concerns. The resulting recommended rules represent a fair balance of interests, and we are very pleased that HHS has adopted the NAIC recommendations.”

Overview, with caveats
The whole health care law is basically held up by two pillars, MLR being one of them. The second is a twin universal coverage mandate — requiring everyone to have health insurance while requiring that insurers must cover everyone regardless of preexisting conditions. In practice, it’s a pretty simple requirement from the federal standpoint, though it requires some fiscal gymnastics for insurers to make sure the books balance at the end of the day.

MLR is not quite so simple, especially when it comes down to the definition of actual medical care or quality improvements. For example, insurers can include any fees they pay to accreditation organizations, but not to ratings agencies. Also, definitions of small and large group policies can change from market to market, state to state. What’s big in North Dakota might not be big in New York, for example.

There are a few caveats to all this. Sebelius can unilaterally move the MLR percentage in an individual market or state “if the Secretary determines that the application of the 80 percent MLR may destabilize the individual market in that State.” There’s a similar out for excessive market volatility.

Existing plans can be grandfathered into the new rules as well, exempting much of what’s already on the market from the new rules.

And, of course, there are the individual waivers that Sebelius has approved, including for McDonalds, Darden Restaurants (Olive Garden, Red Lobster, etc.) and about two dozen Minnesota firms from Regis Corp. to Carlson Restaurants (TGI Friday’s).

Franken’s office said the caveats are “acceptable” — and they’re particularly happy to have avoided a blanket phase-in provision, something health insurers had lobbied particularly strenuously for.

Further reading

HHS’ full guideline book [PDF] released today. (Warning, it’s written in legalese).

NAIC draft guidelines [PDF] on what is and what isn’t a direct medical cost. (Written in something approximating English)

A full list of HHS’ health care overhaul law regulations released to date, and indexed by topic.

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Comments (7)

  1. Submitted by David Greene on 11/22/2010 - 01:13 pm.

    80%? That’s it? Medicare runs on something like 3% overhead. This is why we need single-payer in this country. It’s an outrage that 20% of our health care costs go to non-medical purposes.

  2. Submitted by T J Simplot on 11/22/2010 - 02:10 pm.

    “80%? That’s it? Medicare runs on something like 3% overhead. This is why we need single-payer in this country. It’s an outrage that 20% of our health care costs go to non-medical purposes.”

    Medicare’s is low partly because they only cover people who are over 65 or disabled, thus their average claim cost is higher, making their admin cost lower.

    Also, Medicare basically pays any claim that comes in without having any real fraud protection. They also do disease management. Both of these services add to the administrative cost, but they save more money in the long run.

    Here in MN, the major health plans are around 90% so this does not affect us here much.

    By the way, most charities are considered financially sound if they have 20% admin costs or lower.

  3. Submitted by T J Simplot on 11/22/2010 - 02:49 pm.

    I mistyped. I meant to say that Medicare does NOT do disease management.

  4. Submitted by David Greene on 11/22/2010 - 05:05 pm.

    Ok, the VA operates at about the same overhead and they certainly manage disease. Single payer systems around the world cost far less than our system and deliver better results. That is a proven fact in study after study.

  5. Submitted by T J Simplot on 11/23/2010 - 10:02 am.

    If our healthcare system was run like the VA there would be riots. On the VA system you have to get your care at VA medical centers. You are allowed to visit non VA centers but it must be approved by the VA first. That’s not how I want my healthcare run.

  6. Submitted by Bernice Vetsch on 11/23/2010 - 05:19 pm.

    Mr. Simplot: Medicare and the VA do not spend money on:

    Insurance and Drug Industries:
    -Advertising and marketing
    -Several million “claims denial specialists”
    -Gigantic executive salaries and bonuses
    -Mountains of paperwork

    Hospitals, Clinics, Doctors and Other Providers (extra expenses by our system:
    -Coping with several hundred, rather than one, type of claim form and code numbers
    -Arguing with claims denial specialists on behalf of patients
    -Seeking permission for patients to see specialists or providers outside insurers’ networks
    -Mountains of paperwork

    Some years ago, a physicial from Oregon or Washington visited a large Canadian hospital. When he asked where its bookkeeping department was, his guide showed him a room with four people in it. In Canada, people don’t need to file claims or fight with insurers. In America, there would be dozens.

  7. Submitted by T J Simplot on 11/24/2010 - 12:59 pm.

    Everything you mention rarely happens in MN plus we have one the highest uninsured rates in the nation. Why not try bringing that to a national level?

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