State regulators say insurance industry should easily meet medical-loss requirement

Insurers can meet the requirements in the new health overhaul law for minimum spending on patient care by deducting taxes and relabeling expenses related to improving "health care quality" as medical costs, rather than administrative ones, according to an April 24 memo from an expert at the National Association of Insurance Commissioners, Bloomberg BusinessWeek reports. The health law will require the largest insurance plans to spend 85 percent of revenue on medical care, and smaller ones to spend 80 percent, leaving the difference for administrative costs and profit. The association of state regulators have been asked to provide federal regulators with guidance on this subject, and the draft memo says that most plans could meet the requirements with these changes. Investment bankers say that if that analysis is correct, it would mean a smaller dent in insurers' profits than some investors have anticipated (Armstrong and Nussbaum, 4/27).

The Wall Street Journal: "Attempts to influence what constitutes medical versus administrative expenses have reached a fever pitch in recent weeks. Regulators at the NAIC are rushing to come up with a common set of definitions to meet a June 1 deadline set by the Department of Health and Human Services." The memo is an early glimpse into their thinking. Some consumer advocates have raised concerns about shifting medical management costs, such as one insurer's nursing hotline, from the administrative to medical category. "[I]nsurers often use 'medical management' personnel to deny payment for expensive medical services, said  [Consumer Watchdog's] Jerry Flanagan" (Johnson and Schoofs, 4/28).

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This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.