Medical loss ratio rules for insurers could bring controversy to Sebelius' office

Once the National Association of Insurance Commissioners finalizes recommendations on insurance companies' spending on medical costs versus administrative expenses, the next stop for that proposal will be the desk of Health and Human Services Secretary Kathleen Sebelius, Politico reports. Sebelius will approve - or edit - the proposal for regulating what the industry terms medical-loss ratio, a task that could put her in an awkward position as the arbitrator of insurance firms and consumer advocates. "The report, expected in weeks, isn't likely to be as strict on insurers as top Democrats have hoped. ... But overturning the NAIC could arouse accusations that the agency is playing politics on a highly controversial piece of legislation" (Haberkorn, 8/23).

The Chattanooga Times Free Press reports that "[c]onsumer advocates and doctors are praising reforms that force health insurers to direct more dollars to actual medical care and less to profits and executive bonuses," including the medical-loss ratio rules. "Starting in January, health insurers must spend at least 80 percent of their premium revenue on medical claims for individual and small group plans. For large groups, 85 percent of premium dollars must go to health care. Insurers who don't meet those benchmarks will have to pay rebates to consumers." Also of interest to advocates: new funding for state regulators to keep an eye on premium increases (Bregel, 8/23).

Meanwhile, analysts are saying the rules will be a drag on insurance businesses. Modern Healthcare reports, "[s]truggles to grow revenue and the near-term impact from healthcare reform are dimming the outlook for health insurance companies, according to global credit-rating organization A.M. Best Co… The reform law's medical-loss ratio requirement… will have a significant impact on the industry, the analysis stated" (Lubell, 8/22).

The Milwaukee Journal Sentinel notes that health insurance companies "based in Wisconsin generally are well-positioned for one change under health care reform that could cause some pain for their national competitors: The requirement that 80 cents of every dollar in premiums from individuals and small employers be spent on medical care." One insurance executive said, "We'll be fine." The reason is many of the plans are operated by nonprofit health system that "do not have to worry about pleasing Wall Street" (Boulton, 8/21).