A ‘Boon’ for Consumers May be ‘Bane’ for Brokers & Producers NAIC Adopts Medical Loss Ratio Model Regulation

On Oct. 21, the National Association of Insurance Commissioners (NAIC) adopted a model regulation concerning the calculation of medical loss ratios (MLR) under the Patient Protection and Affordable Care Act (PPACA). The model was submitted to Kathleen Sebelius, secretary of Health and Human Services (HHS), for final review and certification. A final declaration is expected in the next few weeks.

The model regulation provides that starting Jan. 1, 2011, an MLR of 80 percent is applied to the individual and small group market (100 and under lives) and an MLR of 85 percent is applied to large group plans. If health insurance plan issuers do not meet these MLR requirements, they will be required to make a rebate payment to policyholders.

The regulation is designed to help consumers get good value for their health insurance premium dollar.

It’s estimated that more than 20 percent of consumers who purchase coverage in the individual market today are in plans that spend more than 30 cents of every premium dollar on administrative costs. An additional 25 percent of consumers in this market are in plans that spend between 25 and 30 cents of every premium dollar on administrative costs. 

In 2011, under the new rules, estimates indicate that up to 9 million Americans could be eligible for rebates starting in 2012 worth up to $1.4 billion. Average rebates per person could total $164 in the individual market. 

Insurer Reporting Requirements

Beginning in 2011, insurance companies that issue policies to individuals, small employers and large employers will have to report the following information in each state it does business:

• Total earned premiums.
• Total reimbursement for clinical services.
• Total spending on activities to improve quality.
• Total spending on all other non-claims costs excluding federal and State taxes and fees.

Insurance agents and producers have expressed concern about how the NAIC would classify insurance commissions under the MLR formula. The NAIC kept agent commissions under the administrative expense category, instead of recommending that commissions be treated as a pass-through cost, due to concern that the NAIC did not have legal authority to make such a recommendation.

But the issue isn’t settled. The NAIC created an executive committee subgroup to work with HHS officials on the issue of producer compensation in recognition of the important role that brokers play. The good news, according to Jessica Waltman, senior vice president of government affairs for the National Association of Health Underwriters, is that “the ball is still moving forward.”

Medical Expenses vs. Administrative Expenses

The PPACA requires the MLR calculation to include only two categories of medical expenses (with everything else being deemed an administrative expense): (1) incurred claims and (2) quality improvement (QI) expenses.

The model regulation defines quality improvement expenses as “expenses other than those billed or allocated by a provider for care delivery (i.e., clinical or claims costs), for all plan activities that are designed to improve health care quality and increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements.”

The NAIC also stated that quality improvement expenses “should be grounded in
evidence-based medicine, widely accepted best clinical practices or criteria issued by recognized professional medical societies, accreditation bodies, government agencies, or other nationally recognized health care quality organizations.

Quality improvement expenses should not be designed primarily to control or contain cost, although they may have cost reducing or cost neutral benefits as long as the primary focus is to improve quality.

Quality Improvement Expenses

The NAIC standards include five categories of quality improvement expenses:

1.  Improvement in Health Outcomes

• Case management
• Care coordination and chronic disease management
• Making/verifying appointments
• Medication and care compliance initiatives
• Programs to support shared decision-making with patients, their families and the patient’s representative
• Reminding insured of physician appointment, lab tests or other appropriate contact with specific providers
• Providing coaching or other support to encourage compliance with evidence-based medicine
• Use of the medical homes model

2.  Activities Design to Prevent Hospital Readmission

• Discharge planning
• Arranging and managing transitions from one setting to another (such as hospital discharge to home or to a rehabilitation center)
• Activities to promote the sharing of medical records with all clinical providers participating in patient’s care

3.  Activities to Improve Patient Safety and Reduce Medical Errors

• Identification and use of best clinical practices
• Utilization review to identify potential adverse drug interactions
• Quality reporting for activities that improve patient safety and reduce medical errors

4.  Wellness and Health Promotion Activities

• Wellness assessment and coaching programs to achieve measurable improvements
• Educate individuals about effective means for dealing with specific chronic disease or condition
• Certain rewards and incentive programs (including reductions to co-pay) if rewards and incentive programs are not already reflected in premium or claims

5.  Health Information Technology (HIT) Expenses for Quality Improvements

• HIT expenditures used to accomplish activities in the first four categories
• Expenses related to monitoring, measuring or reporting clinical effectiveness, including reporting and analysis costs related to maintaining accreditation, or costs for public reporting of quality of care
• HIT expenses for advancing the ability to efficiently communicate clinical or medical information to determine patient status, avoid harmful drug interactions or direct appropriate care.

Administrative Expenses Excluded as QI Expenses

The NAIC also identified the following to be excluded as quality improvement expenses (and thus constituted as administrative expenses):

• All retrospective and concurrent utilization review
• Fraud prevention activities
• The cost of developing and executing provider contracts and fees associated with establishing or managing a provider network
• Provider credentialing
• Marketing expenses
• Most accreditation fees
• Costs associated with calculating and administering individual enrollee or employee incentives.

(Note: This summary does not include an exhaustive list of services approved by the NAIC as quality improvement expenses, which can be found in the model regulation. It is important to note that the list of excluded expenses includes a catch-all for any activity not expressly listed as a quality improvement expense.)

Benefits providers and managers are advised to watch for the final regulations to be released by HHS and for any additional information disclosed by the executive committee subgroup on broker compensations.

About The Author

John Ryan is president of Baybenefits Insurance Services, a member of NFP Benefits Partners, a national corporate benefits organization with more than 175 offices across the country and more than 2,000 benefits professionals, representing over 40,000 corporate clients of all sizes throughout every industry. The information for this article was compiled with the assistance of NFP Benefits Partners. 

John has an extensive background in client service, sales and management, both as an employee and entrepreneur. He understands the demands of running a business, which makes him the perfect strategic partner for businesses of every size. He has consistently been recognized as one of the Top 50 Producers by Kaiser Permanente, Anthem, Blue Shield and Delta Dental, and is a board member and legislative chair for the Golden Gate Association of Health Underwriters.

For more information, visit Baybenefits at www.baybenefits.com, or contact John Ryan at 415-273-2211.