Implementation of the Minimum Medical Loss Ratio

Timothy Stoltzfus JostWashington and Lee University

MLR familiar concept

NAIC: “A measure of relationship between A&H claims and premiums”

Traditionally used by:investors to track earningsinsurers to set premiumsregulators for rate regulation

State guidelines

• NAIC model guidelines, 50% to 60%• 34 states require reporting in individual

market• 14 states impose minimums, 50% to 80%• 20 states impose requirements in group

market• 6 states require refunds

State and federal MLR not the same

• Federal MLR excludes taxes and regulatory fees from denominator

• Federal MLR includes quality improvement expenses in numerator

• Federal MLR 2 to 12 points higher than equivalent state MLR calculations

2718 of the PHSA

• Part of title XXVII of the Public Health Services Act (HIPAA). (42 U.S.C. s. 300gg-18)

• 2718(a) requires reporting• 2718(b) requires rebates if MLR less than 80%

in nongroup and small group market; 85% in large group market

2718 Adjustments

• State may adjust upwards• HHS may adjust downwards for state if

statutory MLR minimum would destabilize market

• HHS may adjust for volatility after 2014

2718 Application

• Applies to nongroup, small group, and large group issuers

• Applies to grandfathered plans• Does not apply to self-insured; short-term

limited duration plans; or excepted benefit plans

Regulatory drafting process

• NAIC asked to establish definitions and methodologies

• Subject to certification by HHS• Methodologies to take into account situation

of small, newer, and different sorts of plans

NAIC and HHS process

• Final regulation approved by NAIC on October 27, 2010

• HHS issued interim final rule on December 1, 2010 certifying NAIC rule

Aggregation

• Aggregate by individual, small, and large group markets

• Aggregate by issuer (not plan or policy)• Aggregate by state– Multistate employer coverage can be aggregated

in state of employer– Group health plan with multiple affiliated issuers

can be aggregated• Mini-med and expatriate coverage separate

Denominator

• Premium: All monies paid as a condition of coverage

• Excludes federal and state taxes and regulatory fees

Numerator

• Includes expenses for quality improvement. Activities to– improve outcomes– Prevent hospital readmissions– Improve patient safety and prevent medical errors– implement and promote wellness and health– Enhance use of data to improve quality– Quality portion of HIT, accreditation, ICD-10

implementation up to .3%

Formula

Incurred claims + quality improvement _______________________________________

Premiums – taxes and regulatory fees +/- risk adjustment and reinsurance

Credibility Adjustments

• issuers < 1000, not credible• Issuers 1000 – 75,000, partially credible• Issuers > 75,000, fully credible• Adjustments up to 8.3%• Also adjusted for average deductibles 1000 to

10,000 (up to X 1.736)

Mini-med and Expatriate Plans

• Target MLR doubled (40% and 42.5%) for 2011• For 2012 and following, expatriate plans

doubled, mini-med plans multiplied by 1.75 for 2012, 1.5 for 2013, 1.25 for 2014.

• Student plans may also be treated differently

Rebates

• Paid pro rata to enrollees or employers• Paid by August 1• Usually by premium adjustments

Adjustments (Not Waivers)

• To avoid destabilization of individual market• 17 states (plus Guam) have requested• Most requested stepwise adjustment, some

total reduction• So far six states received adjustments, eight

denied, three still pending.

What will the rebates look like?2010 Data

% of carriers paying rebate

% members receiving rebate

Median MLR

Rebate $ millions

Rebate PMPM

Member months millions

Individual 14.2 52.9 73.6 978.3 8.09 121

Small group

15.7 22.8 82.3 447.4 2.13 210

Large group

15 14.7 89.4 526.7 1.13 465

How will Insurers Adjust?

• Reduce administrative costs• Reduce premium increases if medical costs

continue to moderate

How is it affecting agents and brokers?

• Reducing commissions?• Commissions have increased with premiums• Some insurers decreasing or changing to

pmpm in recent past• NAIC study shows decreases in 2011, but

many insurers have not reduced commissions, some have changed compensation structure

• States with high MLRs have not seen loss of access to producers

Agents and brokers• Consumers and insurance commissioners value

the services of producers• Producers believe that the MLR requirement has

reduced compensation• But why is compensation being cut?• And what will happen if taken out of premium

(Rogers bill)?– Will it will increase costs to consumers?– Will it increase the federal budget deficit– Will it increase producer compensation?