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CRS details medical loss ratio requirements

Posted on September 27, 2012 | No Comments

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Key Developments
Implementation Briefs

The Congressional Research Service (CRS) published a report which outlines three issues on which legislation and hearings regarding the Affordable Care Act’s (ACA’s) medical loss ratio (MLR) requirement have focused. The issues include broker commissions, high-deductible health plans (HDHPs), and special rules for nonprofit insurers.

Under the MLR provision, individual and small group plans must spend at least 80 percent of premiums on medical benefits or activities to improve consumer health care quality. Large group plans must spend at least 85 percent. If plans do not meet this MLR requirement, they must refund the different to beneficiaries. In August 2012, insurance companies refunded $1.1 billion to approximately 12.8 million consumers for 2011, due to the ACA provision.

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According to a proposed rule released by the Internal Revenue Service (IRS), "activities that improve health quality" can not be used to determine Blue Cross and Blue Shield's Medical Loss Ratio (MLR) in regards to obtaining their tax-exempt status. According to the Affordable Care Act (ACA), insurance companies lose their tax privilege under tax code Section 833 and the MLR if they do not spend 85% of their premium revenue on enrollee medical services. Until this proposed rule was released, interim guidance permitted insurance companies to count health care quality activities toward their 85%.
The Internal Revenue Service (IRS) recently published a notice giving health organizations another year to comply with the medical loss ratio (MLR) provision enacted by the Affordable Care Act (ACA). Under the MLR provision, Blue Cross Blue Shield organizations and others that meet certain tax code requirements could lose special tax treatment under Section 833 if the organization's MLR during the taxable year is not less than 85 percent. For purposes of Section 833, an organization's MLR is equal to the "percentage of total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies during such taxable year." IRS plans to issue rules specific to MLR, but the industry needs more time to digest related final rules from the Department of Health and Human Services (HHS). Those rules were issued in December 2011. Comments on the notice are requested by September 10 of this year.
The Centers for Medicare & Medicaid Services (CMS), a department within the U.S. Department of Health and Human Services (HHS), released final rules on Friday May 11th requiring insurers to notify subscribers when the medical loss ratio (MLR) provision of the Affordable Care Act (ACA) is met or exceeded for spending on medical claims or quality improvements. The December 2011 interim final rule and final rule on MLR only required that notices be sent to policyholders when insurers did not meet the MLR requirements. The ACA requires both individual and small group plans to meet the MLR requirements by spending at least 80 percent of premiums on medical claims or quality improvements. Large plans are required to spend at least 85 percent. Beginning in August of 2012, insurers must refund the difference to consumers. The goal of the notice is to educate consumers regarding the MLR measures and to help consumers know that the majority of premium payments go towards health care, as opposed to advertising, executive bonuses, or administrative overhead costs. HHS said the rule is not expected to have an economic impact of more than $100 million a year.
The Center for Consumer Information and Insurance Oversight (CCIIO), a division of the Centers for Medicare and Medicaid Services (CMS) recently released a bulletin providing medical loss ratio (MLR) guidance. Section 2718 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act (ACA), requires health insurance issuers to submit a MLR report to the Secretary. The PHS Act also requires issuers to provide a rebate to enrollees if the issuer’s MLR is less than the applicable percentage established in the PHS Act. The CCIIO bulletin covers the following topics:
  • Applicability of the Medical Loss Ratio to Certain Types of Plans
  • Employer Groups of One
  • Counting Employees for Determining Market Size
  • Individual Association Policies
  • Offering Policyholders a “Premium Holiday”
  • Reinsurance and Reporting
  • Exchange User Fees
  • States With a Higher Medical Loss Ratio Standard
  • “Mini-Med” Experience – Application of the Adjustment
  • Form of Rebate
CMS issued a final rule implementing MLR requirements and an interim final rule implementing MLR rebate requirements in December 2011.
The Affordable Care Act’s (ACA's) medical loss ratio (MLR) rule requires health insurers to pay out at least 80 percent of premiums for medical claims and quality improvement, as opposed to administrative costs and profits. A new issue brief from the Commonwealth Fund examines whether insurers have reduced administrative costs and profit margins in response to the new MLR rule. In 2011, the first year under the rule, insurers reduced administrative costs nationally, with the greatest decrease, over $785 million, occurring in the large-group market. Small-group and individual markets decreased administrative costs by about $200 million each.
A Congressional Budget Office (CBO) report found that the Republican-sponsored bill H.R. 1206 would add about $1 billion to the budget deficit over the next deficit. The bill would alter the Affordable Care Act's (ACA's) medical loss ratio (MLR) provision. The provision mandates that insurers spend no less than 80 percent of premium dollars on medical care as opposed to overhead costs and profits. This past year, insurance companies were forced to send back over $1 billion in consumer rebates due to the provision. H.R. 1206 would exclude brokers' fees from counting as administrative costs in the MLR requirement. The bill would also make it easier to obtain waivers for the provision.
One of the most visible consumer protections in the Affordable Care Act (ACA) is the requirement that health insurers pay out at least 80 percent to 85 percent of premium dollars for medical care expenses. Insurers that pay out less than this minimum “medical loss ratio” (MLR) must rebate the difference to their policyholders, starting in 2011. Using insurers’ MLR data from 2010, the Commonwealth Fund recently released an issue brief estimates the rebates expected in each state if the new rules had been in effect a year earlier. Nationally, consumers would have received almost $2 billion of rebates if the new MLR rules had been in effect in 2010. Almost $1 billion would be in the individual market, where rebates would go to 5.3 million people nationally. Another $1 billion would go to policies covering about 10 million people in the small- and large-group markets.
On May 11, 2012, the United States Department of Health and Human Services (HHS) issued a final rule that revises previous medical loss ratio (MLR) rules to establish consumer notification requirements with which insurers must comply when meeting applicable MLR requirements. In a previous December, 2011 final rule governing other aspects of the MLR amendments, HHS had required notification only when insurers did not ...