State officials adopt standards for insurers' expenses

The New York Times: "State insurance commissioners on Thursday unanimously endorsed tough new standards that would require many health insurance companies to spend more of each premium dollar for the benefit of consumers. The new federal health care law stipulates that at least 80 percent of premium revenue must be spent on medical care and 'activities that improve health care quality' for patients — not retained as profits or used to pay executive compensation and administrative expenses. The rules, adopted at a meeting of the National Association of Insurance Commissioners in Orlando, Fla., describe how the calculations will be made, specifying what counts as medical care and what expenses will be classified as administrative." (Pear, 10/21).

Kaiser Health News: "During the debate leading to the recommendations, insurers pushed for the broadest possible definition of what constitutes medical spending, including such things as the cost of paying claims, signing up doctors to their networks or running customer service call centers. The final recommendations are narrower, which is what consumer groups had urged. The commissioners would allow, for example, insurers to include many quality improvement costs, along with payments to doctors, nurses, hospitals and other providers in their medical expense calculations but not costs of fraud control efforts or billing. They also recommended that insurers be able to deduct federal and state taxes, but not taxes they pay on investment income" (Appleby, 10/21).

Politico: "Some cost items, such as doctor's bills, were clearly identified from the outset as medical spending. Insurers' advertising and overhead were quickly put in the administrative category. But many other items, such as nurses' hotlines, some federal taxes, insurance agents' commissions and programs to improve care coordination, fell into a grey area and were subject to hours of debate. Under the final regulation, insurers can categorize a number of health-spending activities as 'quality improvements.' Spending to reduce hospital re-admissions, improve patient safety, reduce medical errors and certain health information technology investments all made the final cut. But regulators counted other costs, such as programs to prevent fraud, as administrative costs despite some protest from the insurance industry" (Kliff and Haberkorn, 10/21).

CNN Money: "Currently insurers don't have to meet any minimum requirements in some states. Other states require as little as 40% of premiums to be used for medical care. Insurers that don't increase that allotment to the new federal standard will have to give customers a rebate for the difference beginning in 2012" (Kavilanz, 10/21).

Los Angeles Times: The Department of Health and Human Services "will either adopt or modify the recommendations. ... These spending ratios, known as 'medical loss ratios,' have been the subject of contentious debates for months. ... The new rules will go into effect in January" (Shrieves, 10/22).

The Wall Street Journal Health Blog: "Among the proposed amendments that didn't make the final rules was a proposal to remove insurance-broker commissions from the administrative cost bucket. You can see why brokers would be nervous about this issue — if insurers are trying to push their administrative costs below those thresholds to avoid having to pay rebates, commissions will likely be squeezed. But the NAIC said it didn't have the authority to make that change — it said the law made it pretty clear those costs would fall under the administrative umbrella — and so the group didn't vote on it. Instead, it created a subgroup to work with HHS officials on the issue" (Hobson, 10/21).

The Washington Post: "Insurers were similarly disappointed by the failure of another eleventh-hour amendment that would have enabled them to lump together spending on their plans across states for the purposes of meeting the medical loss ratio, rather than being required to calculate it on a state-by-state basis. But this was just one of many aspects of the NAIC's final recommendation to which the industry objected" (Aizenman, 10/22).

Reuters: "Insurers argue that the restrictions will handicap smaller companies with limited resources or hit others with plans for small groups or individuals that can be expensive to operate. 'The current MLR proposal will reduce competition, disrupt coverage, and threaten patients' access to health plans' quality improvement services,' America's Health Insurance Plans President and Chief Executive Karen Ignagni said" (Heavey, 10/21).

The Wall Street Journal: "The proposed rule is not all bad for insurers. In particular, the regulators ruled that companies could deduct most taxes from their total premiums, which will make it easier for them to hit the targets. In a letter sent to HHS last week, the state commissioners also urged the agency to consider a gradual phase-in of the rules" (Johnson, 10/21).

The Associated Press: HHS "said in a statement Thursday it will provide 'clear guidance to stakeholders in the coming weeks.'" The statement added that "'[t]hese recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers'" (Murphy, 10/21).