Published on : January 12, 2012

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Summary of Final Rule on Medical Loss Ratio

Summary of Final Rule on Medical Loss Ratio

Overview

The Affordable Care Act enacted on March 23, 2010, requires that health insurance issuers provide rebates to enrollees when their spending for the benefit of policyholders on reimbursement for clinical services and health care quality improving activities, in relation to the premiums charged (as adjusted for taxes), is less than the MLR standards established pursuant to the statute. Rebates are based upon aggregated market data in each State.

This final rule revises the regulations implementing MLR requirements for health insurance issuers address the treatment of “mini-med” and expatriate policies for years after 2011, modify the way the regulations treat ICD-10 conversion costs and revise the rules governing the distribution of rebates by issuers in group markets

 

Final Rule Provisions

Distribution of Rebates in Group Market

  • The rebate distribution process for group markets provides that issuers distribute rebates to group policyholders.
    Comments are solicited on this issue.
  • With respect to policyholders that are a group health plan but not a governmental plan or subject to ERISA, issuers must obtain written assurance from the policyholder that rebates will be used for the benefit of current subscribers or otherwise must pay the rebates directly to subscribers covered by the policy during the MLR reporting year on which the rebate is based.
  • Issuers must distribute the entire rebate directly to subscribers if the group health plan has been terminated.
  • Issuers to provide rebates to the group policyholder through lower premiums or in other ways that are not taxable as per Department of Labor guidelines
  • The amount for a de-minimis rebate in the group market is less than $20 per group health plan for rebates that are distributed to the policyholder.

MLR Rebate Notification

  • The final rule proposed a new notice requirement that will ensure all consumers receive information on either the amount of their rebate or their insurer’s MLR, regardless of whether there is a rebate, as well as how the insurer’s MLR has improved under the new law.
    Comments are solicited on this issue.

ICD-10 Conversion Expenses

  • ICD-10 conversion costs of up to 0.3 percent of an issuer’s earned premium in the relevant State market are considered quality improvement activities (QIA) for each of the 2012 and 2013 MLR reporting years
    Comments are solicited on this issue.

Mini-Med Plans

  • Issuers of policies with total annual benefit limits of $250,000 or less must continue for 2012, 2013 and 2014 to report mini-med experience separately from other experience and must continue to aggregate it by State and by (individual, small group, or large group) market
  • Issuers of mini-med policies must apply a special circumstances adjustment to the numerator of their MLR by multiplying the total of the incurred claims plus expenditures for activities that improve health care quality by a factor of
    • 1.75 for the 2012 MLR reporting year
    • 1.50 for the 2013 MLR reporting year and
    • 1.25 for the 2014 MLR reporting year
  • For the 2012, 2013 and 2014 MLR reporting years, mini-med experience will be reported annually, but not quarterly

Expatriate Plans

  • Issuers of expatriate plans must continue to aggregate and report the experience from these policies on a national basis, separately for the large group market and small group market, and separately from other policies
  • Issuers of expatriate policies must apply a special circumstances adjustment to the numerator of their MLR by multiplying the total of the incurred claims plus expenditures for activities that improve health care quality by a factor of 2.0 beginning with the 2012 MLR reporting year. This applies indefinitely
  • Expatriate experience will be reported annually, but not quarterly

  Key Changes

Interim Rule

Final Rule

Rebate Distribution

Potential of tax consequences as a result of the mechanism for providing rebates established in the interim rule

Consumers receiving rebates from insurance companies will not have to pay taxes

Issuers that have not met the applicable MLR standard to provide any owed rebate to the policyholder and each subscriber

The rebate distribution process for group markets provides that issuers generally distribute rebates to group policyholder

Minimum threshold for issuer payments of rebates in the group market is $5 per subscriber

• The final rule modifies the minimum threshold to a total of $20 for the policyholder and subscriber portion when the rebate is paid directly to the policyholder
• In the individual market, the minimum threshold remains at $5 per subscriber

Rebate Notification

Notification required to be sent by issuers to recipients if enrollees are eligible for rebates

Possibility of a notice requirement for issuers that do not owe rebates.

ICD-10 Conversion Expenses

CMS to examine the reported conversion costs of ICD-10 to determine whether the policy to exclude these costs from Quality Improvement Activities (QIA)

• Includes ICD-10 conversion costs incurred in 2012 and   2013 up to 0.3 percent of an issuer’s earned premium in the relevant State market in each of those years as a Quality Improvement Activity
• ICD-10 maintenance and claims adjudication system costs are excluded from QIA

Mini-Med Policies (Total Annual Benefit Limits of $250,000 or less)

Issuers to report mini-med experience separately from other experience, by State and by market, for the 2011 MLR reporting year

Reporting to continue for 2012, 2013 and 2014

Incurred claims and activities that improve health care quality are multiplied by an adjustment multiplier 2.00 in calculating the MLR for 2012

The appropriate multiplier for mini-med policy experience are
2012 - 1.75, 2013 - 1.50, and in 2014 - 1.25

Issuers to submit a report for each of the first three quarters of the 2011 MLR reporting year in addition to the annual report required of all issuers subject to MLR standards

For the 2012, 2013 and 2014 MLR reporting years, mini-med experience will be reported annually, but not quarterly

Expatriate Policies

Issuers were directed to submit a report for each of the first three quarters of the 2011 MLR reporting year

Expatriate experience will be reported annually, but not quarterly

Incurred claims and activities that improve health care quality are multiplied by adjustment multiplier 2.00 in calculating the MLR for 2012

The multiplier of two applies to policies beginning in the 2012 MLR reporting year and applies indefinitely