State regulators mull definition of medical loss ratio

News outlets report on efforts to define what will be  considered "medical expenses" when it comes to the mandated medical loss ratios in the new health law.

The law requires that health insurers spend 85 percent of premiums on medical expenses for customers in the large group market and 80 percent for customers in the small and individual markets, leaving the rest for "expenses that do not directly benefit customers -- like payroll, advertising, overhead and profits," CNN reports. "To enforce this new health care spending requirement … regulators are now trying to determine which costs should be classified as medical and which are administrative. ... The system that ultimately emerges could have a big impact on the medical care that many consumers receive. The new medical loss ratio requirements go into effect Jan. 1, 2011."

The Department of Health and Human Services has requested state insurance commissioners to submit proposals for how expenditures should be classified. "Many states already have minimum medical loss ratios, [Kim] Holland [secretary of the National Association of Insurance Commissioners] said, and most take a 'fairly conservative view' on what counts as health care -- but the criteria can vary widely. At issue are medical services such as nurse hotlines, said Dylan Roby, researcher at the UCLA Center for Health Policy Research." In addition, "[t]hough there's nothing to stop insurers from jacking up prices in the short term in order to distort their medical loss ratios, Roby said, HHS will review rate hikes annually. He thinks this will give insurers incentive to keep premiums low" (Pepitone, 5/25).

Reuters reports that state heath commissioners had been asked to submit their medical loss ratio proposals by June 1, but the NAIC "now say it will take at least another month to deliver a detailed response. NAIC said in a statement on Monday that it would respond to U.S. Health Secretary Kathleen Sebelius by June 1 but it 'will not include the final definitions and calculation methodologies.' The group said no date had yet been set, but a spokesman said the goal was July 1. … The ratio is closely watched by investors as a key sign of potential profitability and monthly premium rates" (Heavey, 5/24).

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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.