Insurers' stocks rise on new HHS rules designed to protect consumers, increase insurer spending on care

Health and Human Services Secretary Kathleen Sebelius unveiled regulations requiring insurers to spend 80 to 85 percent of premiums collected on medical care, Politico reports. "The rules will have vast implications for how insurance companies spend money as well as for other aspects of the health care industry. Insurers' worries that the Department of Health and Human Services would rule against them on a number of issues were unfounded, and many of the nation's largest insurance companies' stocks rose on the news Monday." Meanwhile liberal advocates heralded the rule as a crackdown on the industry or President Barack Obama said it would make "our health care system stronger" (Haberkorn, 11/22).

The Associated Press: One analyst said the market was reacting to the end of a period of uncertainty for insurers, and that the regulations ended up "somewhat more positive than expected."

"Consumers shopping for health insurance in the future will be able to compare what plans in their area spend on medical care. They'll have to learn some new jargon: the proportion insurers spend on care is termed the 'medical loss ratio.'" (Alonso-Zaldivar and Murphy, 11/23).

"The rules, intended to benefit consumers, vastly expand federal authority to direct the use of premiums collected by companies like Aetna, Humana, UnitedHealth and WellPoint," The New York Times reports. "Sebelius said the rules would protect nearly 75 million people: 10.6 million with individual policies, 24.2 million with small-group coverage and 40 million covered by large employers." Some states have similar rules in place (Pear, 11/22).

"Under the rules to take effect in January, the government will reach in novel ways into the workings of the insurance industry to try to drive down bureaucracy, profits and executives' pay. For the first time, health plans will have to disclose many details about how they allot their money, calculate the portion of their spending that promotes good health, and -- if they devote too much income to the wrong purposes -- give customers refunds," The Washington Post adds (Goldstein, 11/23).

But, "U.S. health insurers can include the cost of federal taxes in determining whether they spend enough on patient care, increasing the amount that can be kept for administration or profit under new rules," Bloomberg reports. "Health plans led by Indianapolis-based WellPoint Inc. may also win delays from the spending requirements if individual states show the federal government that the so-called medical-loss ratio rule will destabilize insurance markets, the U.S. Health and Human Services Department said in a statement today" (Armstrong and Nussbaum, 11/22). 

Kaiser Health News notes some exemptions, including that some "small plans will not have to provide rebates, at least for the first year," and adds that "insurers pushed for the broadest possible definition of what constitutes medical spending, including 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." Broker commissions are not considered medical spending (Appleby, 11/22).

The Wall Street Journal reports that, as part of the new regulations and "[a]mid pressure from employers, the Obama administration on Monday loosened rules for bare-bones health-insurance policies. It marks one of the administration's biggest steps to peel back regulations that big business found onerous under the health- care overhaul," . "McDonald's Corp. had warned regulators it might have to drop its health-insurance plans for 30,000 hourly workers unless it got an exemption for these policies, which have low premiums but also limit payments for medical costs" (Adamy and Johnson, 11/23).

"Sen. Jay Rockefeller (D-W.Va.), one of the main advocates of the medical-loss ratio protections in the healthcare reform law, criticized the special treatment offered to low-value plans in federal regulations," The Hill reports. He said he is "disappointed that limited benefit 'mini-med' plans continue to seek exceptions from these standards," but that "they should know that their requests will be subject to close scrutiny" (Pecquet, 11/22).