Insurers irked by latest draft of spending requirements

"One of the most critical aspects of the federal health overhaul for insurers is shaping up as a mixed bag for the industry, as regulators issued draft rules Thursday on how the companies must account for how much they spend directly on patients' medical care," The Wall Street Journal reports. At issue is which expenses count as medical, versus administrative. A final rule is due on Oct. 21, and the federal government will have to approve it. But, this latest draft has some bad news for insurers: They will have to account for their so-called "medical loss ratio" at each plan, rather than as an overall company. That stings, because the ratios vary widely across company's many offerings. For example, in New Jersey, Aetna has a plan that spends only 70 percent of its premium revenue on medical care, and one that spends a whopping 139% of revenue on care (Johnson, 9/24).

Reuters sums up the background: "Under the Healthcare law, large insurance plans must spend 85 cents of every premium dollar on health care while smaller plans can spend 80 cents on the dollar." On the bright side for insurers, "[u]nder a draft plan released on Thursday, insurers would be allowed to deduct nearly all federal and state taxes except for federal income taxes on investment income and capital gains in making their calculations." A financial analyst said, "It's written the way insurers wanted it to be written, and so that is good for the insurers." The body of regulators that drafted the plan is the National Association of Insurance Commissioners (Heavey, 9/23).

The Wall Street Journal, in a separate story: Insurers say these requirements could disrupt the industry's markets. "Requirements for minimum spending on patient care, which go into effect in January, have led to concerns about the stability of the individual-coverage market in some states. … Individual plans have significant administrative and marketing costs, and many insurers spend substantially less than 80% of revenue on patient care." Insurance commissioners in some states, including Maine and Iowa, have asked delay implementation of the provision for this reason (Brin, 9/23).

Des Moines Register: Iowa Insurance Commissioner Susan Voss "raised her concerns this week in a letter to Kathleen Sebelius, U.S. secretary of health and human services. She asked Sebelius to give Iowa until 2014 to comply with the new requirement. 'Without such a waiver provision, I believe the federal standard will disrupt our individual health insurance market,' she wrote" (Leys, 9/24).