Consumers Ahead in the Battle to set Medical Loss Ratio Requirements

The eyes of the health care community were focused this past week on Seattle, WA, where the state insurance commissioners have been meeting.  As many of you know, the new health reform law requires health insurance companies to start spending at least 85% of your premium dollars to provide health care in large group markets (80% in individual and small group markets), referred to also as a Medical Loss Ratio or MLR.  Congress, however, left the job of defining what counts as a health care expenditure up to the National Association of Insurance Commissioners (NAIC), subject to certification by the Secretary of Health and Human Services (HHS).

The health insurers have been represented by 500 well funded lobbyists, and the consumers by not nearly as well financed but nonetheless passionate advocates like Wendell Potter. The battle has been waged how expansive the definition of medical care and quality improvement would be, with insurers looking to reclassify administrative expenses as quality improvements.

Thanks to high public scrutiny, on the final day of the NAIC meeting, consumers scored an important victory. In a rare unanimous vote, the NAIC Executive Committee approved the adoption of new Medical Loss Ratio reporting form (in insurance industry lingo, a "blank"). Politico reports:

The commissioners moved forward with a proposed “blank,” NAIC terminology for an insurers’ filing document, as well as 10 of 11 proposed amendments. They approved amendments that narrow inclusions of utilization review in the calculation and expand the definition of "wellness and health promotion activities" to include "public health marketing campaigns that are performed in conjunction with state or local health departments."
Insurers would have loved to label every ad they run on television as a "public health marketing campaign" and claim the expenses as "medical" or "quality improvement" expenses. However, note that the new requirements would exempt only real public health campaigns that are approved and provided in conjunction with local or state health departments. In other words, only true public service announcements.

That's not all. Not only did the NAIC approve public health and consumer-friendly amendments, the one amendment they rejected was going to help the insurance companies.
The one rejected amendment would have allowed insurers to count accreditation fees as a “quality improvement” cost, thus making it a part of medical spending.
The reporting form is actually beautiful in its simplicity of what counts as a medical or quality improvement expense.  Here is the list (you can see the form here):
  • what insurance companies actually pay out in claims,
  • health care quality improvements, including expenses in health information technology, and
  • the fraud and abuse detection and recovery costs that actually reduced paid claims (once the paid claim is reduced, of course, the insurance company won't be able to count the recovered amount in the paid claims) or total fraud and abuse detection and recovery costs, whichever is less.
Insurance companies suggested that all fraud prevention related expenses (which is whatever they say it is) to be included as a quality improvement. Consumer advocates and NAIC seems to have said, "Sure, prove that your fraud prevention actually works by recovering money and we'll let you deduct the money you spent trying to recover the money."

Consumer advocates are generally pleased. We go back to Politico for the reporting:
“In general, we are very pleased,” said NAIC consumer advocate Timothy Jost, a professor of health policy at Washington & Lee University. “The process has been very open and participatory. We feel like our concerns have been listened to.”
Insurance company lobbyists, of course, are moaning and groaning. Karen Ignani, in her usual fashion, is going around trying to scare people with the age-old false health care choice of quality vs. quantity.
"...the current proposal could have the unintended consequence of turning back the clock on efforts to improve patient safety, enhance the quality of care and fight fraud,” AHIP president Karen Ignagni said in a statement. “Preserving patients’ access to high-quality health care services is essential if the key goals of health care reform are to be achieved.”
Several things within the MLR debate remain undecided yet, although the biggest issues on it have been decided. The most significant of the remaining MLR matters is how federal taxes factor into the MLR calculations - that is, whether all or only some federal taxes are exempt from the MLR calculations.
The vote still leaves unresolved many contentious issues in MLR regulation, chief among them how federal taxes will be factored into the calculation. Excluding more taxes from the calculation would make overall spending smaller, thus helping increase the percentage of spending on medical costs.

While insurers have pushed for nearly all taxes to be excluded from the calculation, congressional Democratic chairmen argued, via a letter last week, that only taxes incurred directly from the legislation ought to be exempt.
That letter, written by the three Senate Committee Chairmen and three House Committee Chairmen, attempts to clarify the legislative intent.  While the law on its face only says "excluding federal and state taxes," the Chairmen in their letter contend that the exclusion does not apply to federal taxes that were in place before PPACA passed, such as federal income and payroll taxes.  Quoting from the letter:
"Federal taxes and fees" in this context is meant to refer only to Federal taxes and fees that relate specifically to revenue derived from the provision of health insurance coverage that were included in the PPACA. Thus, the Federal taxes and fees that fall into this catorgy are: (1) the annual fee imposed by section 9010 based on each health insurer's market share based on net premiums written; (2) the annual fee imposed by section 6301 on each health insurance policy (based on the average number of people covered under the policy) and (3) the tax imposed by section 9001 on high-cost employer sponsored health coverage [author's note: or the Cadillac tax].  Federal income taxes or payroll taxes were not intended to be excluded from the denominator.
Since this wasn't clearly put in the law, however, many at the NAIC do not see things the same way as mentioned in the letter. However, even if they allow all federal taxes to be exempt, the difference is unlikely to be very significant, at any rate, since the insurance companies would be in a catch 22: try to avoid paying taxes and risk having to spend more on care or write checks to members, or pay their taxes fully, which can be used to further improve health care in many ways, including public health systems.  Personally, I am not sweating too much over this.

That said, although consumers won this round, this is only one step of the battle to implement health reform properly, of course. Let there be no doubt that the insurance industry will keep coming back with their lobbyists and money to try to game the system.  The best way for all of us to contribute to this process of implementing the most important reform in our nation's health care system in more than half a century is to keep our eyes and ears open.  Contact your state's insurance commissioner's office and tell them to keep fighting for consumers as reform is implemented.  The NAIC has a full list of state insurance commissioners, complete with contact information.

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