responses to specific questions raised in the … to ahip mlr letter (05-14...care quality‖ and...
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Responses to Specific Questions Raised in the Request for Information
A. Actual Medical Loss Ratio Experience and Minimum Medical Loss Ratio Standards
1. “How do health insurance issuers’ current medical loss ratios for the individual,
small group, and large group markets compare to the minimum standards required
in the PPACA?”
The traditional medical loss ratio (―MLR‖) reporting prior to PPACA only considered
medical claims costs and premiums earned, while the PPACA’s formula for MLR is more
inclusive and complex as reflected in its adjustments for ―activities that improve health
care quality‖ and ―Federal and State taxes and licensing or regulatory fees.‖ Moreover,
as described above, the MLR provision assumes the presence of the post-2014 reform
environment and draws contrasts with the current market. As noted in our letter, there
are significant differences between the current market and that expected for 2014. This
underscores the importance of an effective transition. A well-defined transition is
necessary to ensure stability and must take into account critical factors such as
durational issues for individual coverage, the labor intensive process for establishing
coverage in the individual and small group markets, the cost structure and existing
obligations with current coverage and the impact of lower overall premium levels found
in the current market on MLR values.
These significant differences make direct comparisons of previous MLRs to the new
minimum standards required by PPACA difficult and compel consideration of how the
MLR ―uniform definitions‖ and ―standardized methodologies‖ may impact the health
plans’ solvency and market participation.
a. “What factors contribute to annual fluctuations in issuers’ medical loss
ratios?”
A number of factors contribute to annual fluctuations in an health plan’s MLR,
including but not limited to: claims experience changes, for instance due to a
particularly extensive flu outbreak; required start-up costs, especially in the
individual market and small group markets; durational patterns for individual
coverage (in the vast majority of states that are not guarantee issue) which means
that these plans will have lower loss ratios(with higher loss ratios in later
durations); new benefit mandates and required administrative changes, such as
those related to implementation of HIPAA and other health information
technology related requirements including legislatively mandated ICD-10 and
administrative simplification requirements.
b. “To what extent do States have different minimum medical loss ratio
requirements based on plan size, plan type, numbers of years of operation, or
other factors?”
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See Attachment B entitled ―State Mandatory Medical Loss Ratio (MLR)
Requirements for Comprehensive, Major Medical Coverage: Summary of State
Laws.‖ Attachment B provides, among other things, a full description of the
various approaches States have taken to MLR requirements, recently updated
based on feedback from the NAIC.
2. “What criteria do States and other entities consider when determining if a given
minimum loss ratio standard would potentially destabilize the individual market?
What other criteria could be considered?”
The primary criteria that should be considered is whether the individual market is robust and
stable and that consumers have choices among insurance policies offered. If because of the new
MLR standard it is no longer viable for a health plan to issue policies in the individual market or
remain in the market adjustments to MLR ratio should be made to protect access for consumers.
If a health plan were to determine that it is no longer viable from a loss and solvency standpoint,
the health plan’s only recourse under existing law is to exit the individual market on a state-by-state
basis. The plan would then typically be prohibited from re-entering the market for 5 years.
The impact of these events on consumers and the market would be significant. Existing enrollees
would lose their existing coverage, all consumers would face reduced choices, and the market would
have fewer competitors. Moreover, while a new transitional high risk pool might be established in a
state, as a pre-requisite to participating in the new high risk pool a high risk individual would have
to be without coverage for 6 months (and issues concerning the solvency of the new transitional high
risk pools have also been raised by government offices).
B. Uniform Definitions and Calculation Methodologies
1. “What definitions and methodologies do states and other entities currently
require when calculating MLR-related statistics?”
See Attachment B.
a. “What assumptions and methodologies do issuers use when calculating
MLR-related statistics? What are some of the major difference that exist, as
well as pros and cons of these various methods?”
Individual coverage typically exhibits durational claims (in the vast majority of
states that are not guarantee issue) which means such coverage will have lower
loss ratios in the early years with higher loss ratios in later duration. Coverage
in early durations also reflects high start up costs. For this reason, a single year
methodology is not used. Instead, a lifetime MLR methodology is used wherein
actuarially forecasted costs and premiums are combined with past costs and
premiums and used to ensure that, over the expected life of the policy, the MLR
will approximate a certain percentage. In addition, some States require health
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plans to report a ―future lifetime loss ratio,‖ which is an actuarial forecast of
future costs and premiums and is used to ensure premiums will cover future costs.
Financial statements use Generally Accepted Accounting Principles (―GAAP‖).
At the present time, ―activities that improve health care quality‖ and ―Federal
and State taxes and licensing or regulatory fees‖ are not features of the MLRs
calculated for financial statement purposes. How costs and MLR are reported in
financial statements using GAAP may differ from how regulators require
reporting of costs and MLRs under statutory accounting conventions.
Notwithstanding these differences and the potential for diverse outcomes (i.e.,
distinct MLR values), an MLR is calculated in each context for the same
purpose—to assess financial soundness.
b. “What kinds of assumptions and methodologies do issuers currently use
for allocating administrative overhead by product, geographic area, etc.?
What are the pros and cons of these various methodologies?”
As appropriate to the reporting context, health plans will employ statutory
accounting requirements or GAAP criteria for allocating expenses. Many health
plans allocate expenses based on time allocation studies. In addition, health
plans may allocate expenses based on plan premiums or the number of
policyholders, if the expense is directly variable to such functions.
Health plans are extremely varied in the types of insurance and other services
they offer, size, and geographic location. Both statutory accounting requirements
and GAAP criteria recognize such differences by allowing for flexibility in how
expenses are allocated.
It is critical that the PPACA MLR allocation requirements recognize the
considerations relevant to a variety of contexts. Administrative costs for large
group coverage, for example, are typically not reported on a state-by-state basis.
Requiring such reporting will create significant new administrative costs. It also
would work against the basic accounting principle of matching costs to
associated premiums. In addition, it is important that health plans not be subject
to a one-size fits all allocation methodology that does not provide the flexibility of
current statutory accounting requirements and GAAP criteria necessary to
accommodate different health plan models. This is especially true in light of
efforts to encourage experimentation and reform in payment and delivery system
models. MLR implementation should not be allowed to undermine these
important efforts.
c. “What kinds of assumptions and methodologies do issuers currently use
when calculating the loss adjustment expense (or change in contract
reserves)? What are the pros and cons of these various methods?”
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Loss adjustment expenses (―LAE‖) are very different from contract reserves. The
LAE calculation includes many ―activities that improve health care quality,‖ but
may also include the normal cost of reimbursement for health care services. As
the collection of usable information about the interaction of various health
conditions is a priority under PPACA, the level of recorded information on even
simple claims is as critical as it is on the most expensive claims.
Allocation methodologies for LAE involve the same issues discussed in the
response to RFI Question B.1.b for administrative expenses. For example,
recognition of costs for systems to collect and report quality information would be
appropriate under a variety of allocation methodologies.
In contrast, contract reserves are the pre-payment of anticipated higher incurred
claims in later years on a contract. As such, they generally are considered a part
of benefits (incurred claims, under PPACA) when included in a MLR.1
d. “To what extent do States and other entities receive detailed information
about the distribution of non-claims costs by function (for example, claims
processing and marketing)? To what extent do they set standards as to which
administrative overhead costs may be allocated to processing claims, or
providing health improvements?”
Some states, such as California, require some allocation of non-claims expenses
into specified types, but the majority of states do not have such a requirement.
Because states traditionally have required MLR reporting to review an health
plan’s proposed premium changes, to date, the focus has been more on
comparing the ratio of actual and projected incurred claims to similar values of
earned premiums versus regulatory standards that vary by type of product,
renewal category, and premium size.
The NAIC annual statement blank that most health plans file requires the health
plans to report expenses according to a variety of categories, and then to divide
these expenses into those that are claim related and those that are non-claim
related. The health annual statement blank, in the underwriting and investment
exhibit, part 3, requires a split of expenses into ―cost containment expenses,‖
―other claim adjustment expenses,‖ ―general administrative expenses,‖ and
―investment expenses.‖ Each of those categories is further classified into one of
twenty-eight sections and sub-sections, although the blank may not capture all
cost containment expenses. For health plans filing the life annual statement
blank, exhibit 2 (general expenses) classifies accident and health expenses into
―cost containment‖ and ―all other‖ and those categories are further classified
into one of thirty-three sections and sub-sections. Exhibit 3, (taxes, licenses and
1 See, e.g., 42 C.F.R. § 403.253 (MLR calculation for Medicare Supplemental policies).
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fees) has six separate items. When an expense does not fit into a pre-defined
section, health plans are to write-in a description of the expense.
e. “What kinds of criteria do States and other entities use in determining if a
given company has credible experience for purposes of calculating MLR-
related statistics?”
Although health insurance premiums have not historically been subject to
credibility review, many States have recognized credibility for property/casualty
rate filings. These States do not have defined measures of credibility, but instead
rely on actuaries, subject to appropriate actuarial methodology, to determine the
credibility that applies to any filing.
Some States2 allow health plans, if they have filed a ―loss ratio guarantee‖ with
the State, to forgo prior regulatory approval of premium rate increases. The
guarantee requires the health plan to meet a MLR requirement, such as that
contained in the NAIC's ―Guidelines for Filing of Rates for Individual Health
Insurance Forms,‖ which contains a credibility standard. If the health plan fails
to meet the MLR requirement, it is required to rebate the difference to the
policyholders.
As noted previously, we recognize the need to ensure appropriate levels of
statistical credibility in the determination of an MLR standard in order to
maintain stability in the marketplace.
One way to address this issue is to adopt a modified version of the credibility
adjustment table that is included in the NAIC Annual Medicare Supplement
Refund Calculation form to factor in a non-Medicare population. These
standards, however, must guard against the unintended effect of causing volatility
that results from normal variation in experience, and that could drive up the cost
of health insurance coverage for consumers and reduce their choices in the
marketplace. New regulations should build on the experience and lessons learned
from the calculations designed for the NAIC Medicare Supplement loss ratio
standards. However, the specific standard adopted for the commercial health
insurance market would need to be adjusted to factor in the diversity and wider
variation of claims costs experienced in comprehensive benefit plans for a non-
Medicare Supplement population.3
f. What kinds of special considerations, definitions, and methodologies do
States and other entities currently use relating to calculating MLR-related
statistics for newer plans, smaller plans, different types of plans or coverage?
2 See, e.g., S.C. Code § 38-71-310(E).
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As discussed previously, special considerations should be given to newer plans,
different types of plans and smaller plans as follows:
Newer Plans: As discussed, individual health care coverage typically
reflects lower loss ratios in the early years or “durations” of coverage and
higher loss ratios in later durations. Coverage in both the individual and
small group markets reflect significant start-up costs. In addition, in many
cases, the coverage under newer plans may be in place for less than a year
and will not have accumulated adequate experience for purposes of the
MLR calculations. Approaches for addressing the special circumstances
of “newer plans” need to take these factors into account.
Different Types of Plans: There are a number of potential issues that need
to be addressed, including circumstances involving the provision of
coverage to Americans located abroad.
Another special circumstance to recognize is that coverage issued prior to
enactment of PPACA was designed to meet different standards, and the
cost structure for this coverage is locked in through contractual
commitments. Similarly, as discussed, the differences between the current
market and post-2014 market should be taken into account with respect to
coverage issued during the 2010-2014 transition. In other words, while
the requirements of the MLR provision remain largely unchanged between
the pre and post-2014 time period, implementation of the major structural
changes does not occur until after 2014.
Smaller Plans: The issues associated with scale are particularly important
for smaller plans. In this regard, the credibility adjustment discussed above
is especially necessary as a means of protecting small plans against
volatility in the market and effectively creating a barrier to the entry of
new plans – which will tend to be small at the outset.
In addition, smaller plans also face challenges with respect to the structure
of administrative costs. Because many administrative costs are fixed in
nature, smaller plans will tend to have higher average administrative costs
because they have a smaller base of coverage over which to spread these
costs.
It is also important to take into account the tendency for each of these
circumstances to run together. For example, if a particular carrier offers
coverage that is predominantly “new,” or in early durations, “small” with
respect to scale, and “different” reflecting the rules and structure of the
market under which the coverage was written, the totality of these
circumstances should be taken into account. To do otherwise is to invite
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significant disruption for those with existing coverage and to limit choices
and competition for all consumers.
2. “What are the similarities and differences between the requirements in Section
2718 and current practices in states?”
a. “What MLR-related data elements that are required by PPACA do issuers
currently capture in their financial accounting systems, and how are they
defined? What elements are likely to require systems changes in order to be
captured?”
The NAIC annual statement blank requires that most plans report expenses
according to a variety of categories, and health plans therefore have accounting
systems to report those categories. However, we expect that system changes are
going to be required by all health plans, the extent of which will likely be
determined when formal definitions are received from NAIC and certified by the
Secretary.
b. “What MLR-related data elements that are required by PPACA do States
or other entities currently require issuers to submit, and how are they
defined? What elements are not currently submitted?”
In relation to the MLR, States require health plans to submit data regarding
incurred claims and earned premiums. States often require other data to be
submitted, but not necessarily in the context of the MLR.
3. “What definitions currently exist for identifying and defining activities that
improve health care quality?”
a. “What criteria do States and other entities currently use in identifying
activities that improve health care quality?”
“Reimbursement for clinical services provided to enrollees”
For purposes of calculating MLR, it would appear that the term ―reimbursement
for clinical services‖ would include any payment for the provision of clinical
services. However, with the implementation of many new innovations in health
care delivery, reimbursement for clinical services is increasingly in the form of a
bundled payment that may include secondary health care improvement
components. In light of the various provisions of PPACA that seek to achieve
appropriate care patterns, we recommend MLR standards and uniform definitions
that allow bundled payments by the health plan to the provider to be included in
total as a cost of ―reimbursement for clinical services.‖ While portions of these
bundled payments include quality improvement mechanisms, we recommend that
including all such payments as ―reimbursement for clinical services.‖ This will
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alleviate the unnecessary burden in accounting for such payments and encourage
health insurance health plans and health care providers to promote such bundled
payment arrangements which help patients get the appropriate care and may help
bring down the cost of health care coverage.
“Activities that improve health care quality”
With respect to the second broad goal of ensuring that our nation’s health care
system moves toward a higher value path focused on quality, it is critical that the
term ―activities that improve health care quality‖ as referred to under PPACA
Section 1001 (amending PHSA, Section 2718), is appropriately defined. This
definition should recognize the full range of health plan activities – both directly
and indirectly related to patient care – that have the primary purpose of
improving patient outcomes.
When defining such activities, HHS should consider the quality framework and
criteria established by the Institute of Medicine (IOM) and the Agency for
Healthcare Research and Quality (AHRQ), entities which have a primary goal of
promoting high quality health care for consumers. In Crossing the Quality
Chasm, the IOM stated that enhancing quality in our health care system requires
a focus on six core aims: (1) safety; (2) effective; (3) patient-centered; (4) timely;
(5) efficient; and (6) equitable. AHRQ – which consistently refers to the IOM’s
criteria – notes that there are similar facets to health care quality. More details
about the IOM and AHRQ quality framework and criteria are included in
Appendix A.1.
Identifying Categories of Activities that Improve Health Care Quality
We believe the definition of ―activities that improve health care quality,‖ at a
minimum, should include:
Care and case management, disease management programs, care
coordination and patient monitoring that provide direct benefits to
policyholders;
Wellness and prevention programs including health risk assessments;
Investments in health information technology that are designed to improve
health care quality, reduce medical errors, reduce health disparities, and
advance the delivery of patient-centered medical care, including the
development of personal health records (PHRs) and costs associated with the
transition to ICD-10 codes that will be used in health plan systems that
promote quality and safety;
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Costs associated with provider credentialing, ensuring that providers are
appropriately accredited, certified, licensed, and have not committed
malpractice, fraud, or other violations, and other activities related to the
development and maintenance of networks (including Centers of Excellence
networks);
Quality programs that would qualify a plan for accreditation by either URAC
or NCQA;
Value-based purchasing initiatives, including pay-for-quality, gain-sharing,
risk sharing arrangements, and shared savings initiatives, intended to provide
higher quality of direct care to patients;
Nurse call lines;
Care improvement activities that aim to improve the quality and/or
appropriateness of care delivery at either a population or service level,
including medication therapy management, radiology benefit management,
and formulary management;
Programs designed to ensure patient safety with respect to prescription drugs,
such as medication and care compliance, drug interaction, and drug safety
programs;
Quality research and reporting programs designed to educate providers and
encourage them to change behavior to improve patient outcomes;
Consumer education programs, including programs aimed at reducing health
care disparities;
Costs associated with maintaining and developing patient-centered medical
homes; and
Internal and external review programs that ensure that patients receive
effective care in a timely manner.
We believe the activities listed in the bullets above are appropriately identified as
―activities that improve quality of care‖ for the following reasons:
• All of the activities are consistent with the IOM’s and AHRQ’s criteria for
quality care;
• Many of the activities have been referred to as quality improvement
activities in the health care reform law;
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• Activities have been referred to as quality improvement activities by the
Administration, and/or by independent and credible groups; and/or
• There are numerous examples of how these activities have improved
health care quality for patients.
These reasons are explained in more detail below and in Appendix A.2.
Consistent with the IOM and AHRQ Criteria for Quality Care
Each of the activities listed in the bullets above meets at least one of the facets
contained in the IOM’s definition of quality, and/or contributes to ensuring
quality health care based on AHRQ’s criteria (i.e., that the right thing is done for
patients at the right time and care is effective). For example:
Activities listed above which improve patient safety (IOM’s first criteria)
include: investments in health information technology to reduce medical
errors and patient safety programs including programs that prevent adverse
drug interactions.
Activities listed above which improve effectiveness of care and help avoid
underuse, overuse, and misuse (IOM’s second criteria and AHRQ’s criteria)
include: wellness and prevention programs, provider credentialing and
activities relating to the development and maintenance of provider networks,
quality programs that would qualify a plan for accreditation, value-based
purchasing initiatives, internal and external review programs, nurse call
lines, care improvement programs, and quality research and reporting
programs designed to educate providers.
Activities listed above which improve patient-centeredness (IOM’s third
criteria) include: patient-centered medical homes, and care and case
management and disease management programs.
Activities listed above which improve equity of care (IOM’s sixth criteria)
include: consumer education programs including programs to address health
care disparities.
Referred to as Quality Improvement Activities in PPACA
Many of the categories of activities listed above have been referred to as quality
activities in the health care law. These activities include:
Quality reporting (See PPACA, Section 1001);
Effective case management (See PPACA, Section 1001);
Care coordination (See PPACA, Section 1001);
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Chronic disease management (See PPACA, Section 1001);
Medication and care compliance initiatives (See PPACA, Section 1001);
Patient-centered education and counseling, comprehensive discharge
planning, post discharge reinforcement by an appropriate health care
professional, and other activities to prevent hospital readmissions (See
PPACA, Section 1001);
Activities to improve patient safety and reduce medical errors through the
appropriate use of best clinical practices, evidence based medicine, and
health information technology under the plan or coverage (See PPACA,
Section 1001);
Wellness and health promotion activities (See PPACA, Section 1001);
Value-based purchasing initiatives, such as pay-for-quality initiatives (See
PPACA, Title III, Subtitle A, Part I);
Patient-centered medical home (See PPACA, Section 3502);
Care improvement activities, such as medication management (See
PPACA, Section 3503); and
Activities related to the development and maintenance of provider
networks, such as maintenance of certification (See PPACA, Section
10327)
More detailed information is provided in Appendix A.2.
Referred to as Quality Improvement Activities by the Administration and Others
Many of the categories of activities listed above have been referred to as quality
activities by the Administration or other independent and credible researchers or
groups. For example:
Personal Health Records (PHRs), Transition to ICD-10 Codes and Other
Investments in Health Information Technology. OMB recently noted that
―the [President’s] Budget includes $110 million for continuing efforts to
strengthen health IT policy, coordination, and research activities. Combined
with the Recovery Act’s Federal grant and incentive programs designed to
assist providers with adoption and meaningful use of electronic health
records, these efforts will improve the quality of health care while protecting
privacy and security of personal health information.‖4
Likewise, the American Academy of Pediatrics (―AAP‖) has stated that PHRs
can ―provide information to serve as the basis for pediatric quality
improvement efforts.‖ Finally, HHS has indicated that with the adoption of
the ICD-10 code sets, the nation is ―taking a giant step forward toward
4 “Secure and Affordable Health Care for All Americans. OMB fact sheet, available at
www.whitehouse.gov/omb/factsheet_key_health_care/.
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developing a health care system that focuses on quality and affordability
through the implementation of health information technology… The greatly
expanded ICD-10 code sets will enable HHS to fully support quality
reporting, pay-for-performance, bio-surveillance, and other critical
activities‖ and ―improve disease tracking and speed transition to an
electronic health care environment.‖5 As HHS recognizes, the new ICD-10
codes will be used by health plans in systems that promote health care quality,
including case management applications that capture and review medical
history and claims data to help in the coordination of care, disease
management processes that evaluate treatment provided to a patient with a
chronic condition to ensure that proper care is rendered; pharmacy system
processes such as medication warning and allergy alerts; and electronic and
personal health record systems.
Activities Related to the Development and Maintenance of Provider
Networks. Health plans and health plans ensure that providers are
appropriately licensed, certified, and accredited as they develop and maintain
their provider networks. Such activities have been found by others, such as
the IOM, to improve health care quality. The 2001 Institute of Medicine’s
landmark report, Crossing the Quality Chasm, recommended that setting and
enforcing explicit professional and facility standards through regulatory and
other oversight mechanisms, such as licensure, certification, and
accreditation, define minimum threshold performance levels for health care
organizations and professionals.
Health plans also promote high quality by ensuring that network providers
have not committed malpractice, fraud, or other violations. The relationship
of fraud activities to quality, for example, was confirmed in President
Obama’s HHS Budget message where ―reducing fraud, waste, and abuse‖ is
cited as ―an important part of restraining spending growth and providing
quality service delivery to beneficiaries.‖
Care improvement activities. These activities are designed to ensure that
patients are receiving the right services and procedures at the right time. In a
recent report, the Government Accountability Office (GAO) recommended
that the Centers for Medicare and Medicaid Services (CMS) use private payer
management strategies to address quality issues, such as variations in
imaging use across geographic regions and potential overuse of imaging
services.6
5 “HHS Proposes Adoption of ICD-10 Code Sets and Updated Electronic Transaction Standards,” News Release,
August 15, 2008, available at www.hhs.gov/news/press/2008pres/08/20080815a.html.
6 GAO-08-452.
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Examples Demonstrating the Quality Benefits of these Activities to Patients
Plans and health plans have developed and implemented countless initiatives
aimed at improving health care quality and patient outcomes. Several examples
are included in Appendix A.2. Each example – which falls into one of the
categories listed in the bullets above – includes results which demonstrate how
consumers have benefitted from the activity.
In addition to the 13 categories of activities previously outlined, we urge HHS to
consider that all carriers fund efforts to improve the health and welfare not only
of their enrollees, but of the communities they serve through community benefit
programs, such as research, community-based health partnerships, direct health
coverage for low-income families, and grants and technical assistance to
community clinics, health departments, and public hospitals. These programs
improve health care quality and should be recognized as such in the MLR
calculation as well.
Moreover, it is important to recognize that the list of activities that improve health
care quality is never static. Health plans continue to develop new methods to
improve patient outcomes and current quality improvement programs continue to
evolve. For this reason, we urge HHS to make clear that any list – which
establishes categories of activities that improve health care quality – should not
be exclusive. The flexibility to recognize other activities, particularly future
activities, as improving health care quality is critical in a constantly changing
environment.
Recognizing these or similar activities and factors in the MLR calculation would
be consistent with current medical loss ratio calculations of others, such as the
state of Minnesota.7 More importantly, it would create incentives for plans and
health plans to continue to promote innovation, and ensure that such programs
which improve quality and patient outcomes are developed and maintained.
Finally, excluding these activities from the MLR calculation would undermine the
quality framework established by the Institute of Medicine and in most cases, the
policy objectives of and/or statements made by the Administration.
b. “What, if any, lists of activities that improve health care quality currently
exist? What are the pros and cons associated with including various kinds of
activities on these lists (for example disease management and case
management)?”
7 Among other things, the state recognizes case management activities, clinical quality assurance and other types of
medical care quality, improvement efforts, and consumer education for health improvement in its calculation.
Report of 2005 Loss Ratio Experience in the Individual and Small Employer Health Plan Markets for: Insurance
Companies Nonprofit Health Service Plan Corporations and Health Maintenance Organizations, June 2006.
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See answer from Section 3.a. above.
c. “To what extent do current calculations of medical loss ratios include the
amount spent on improving health care quality? Is there any data available
relating to how much this amount is?”
A Minnesota Department of Commerce report8 defines loss ratio as the ratio of
incurred claims to earned premiums.
The report defines incurred claims as the paid-on-incurred claims for the year,
plus a reserve for claims incurred but not yet paid, plus the change in any other
reserves held, plus the expenses incurred during the year for the following items,
where expenses for a functional area should include allocated costs such as
electronic data processing equipment, office space, management, overhead, and
so on.
For insurance companies and nonprofit health service plan corporations,
incurred claims include:
any accrued expected value of withholds, bonuses, or other amounts to be paid
to providers under contracts with the health plan company;
any accrued prescription drug rebates or refunds from pharmaceutical
companies (a reduction to the claims);
case management activities;
capitations paid or accrued to providers for claims incurred during 2005;
clinical quality assurance and other types of medical care quality
improvement efforts
concurrent or prospective utilization review as defined in Minnesota statutes;
consumer education solely for health improvement;
detection and prevention of payment for fraudulent requests for
reimbursement;
net reinsurance cost (premiums less claims) for the Minnesota Health Care
Reinsurance Association (MHCRA) and private reinsurance, and assessments
by MHCRA;
network access fees to PPOs and other network-based health plans;
provider contracting and credentialing costs; and
provider tax required by Minnesota statutes, section 295.52.
4. “What other terms or provisions require additional clarification to facilitate
implementation and compliance? What specific clarifications would be helpful?”
8 Report of 2005 Loss Ratio Experience in the Individual and Small Employer Health Plan Markets for: Insurance
Companies Nonprofit Health Service Plan Corporations and Health Maintenance Organizations, June, 2006
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We are hopeful that the process in which the NAIC is currently engaged will provide the
necessary clarifications.
C. Level of Aggregation
1. “What are the pros and cons associated with using various possible level(s) of
aggregation for different contexts relating to implementation of the provisions in
Section 2718 (that is, submitting medical loss ratio-related statistics to the Secretary,
publicly reporting this information, determining if rebates are owed, and paying out
rebates)?”
As discussed previously, an important consideration for ensuring that implementation of
the MLR provision does not create instability in coverage is the approach or
methodology for pooling costs and experience with respect to the provision of coverage.
This is a critical issue both with respect to the transition to 2014, and for the longer-term.
The essential issue is to arrive at an approach that ensures costs accounted for under the
MLR calculation match the actuarial considerations involved in pricing coverage. To do
otherwise is to break with well-established accounting principles that seek to match costs
with associated revenues. This could lead to volatile results if the costs pooled for
purposes of the MLR calculation reflect an artificial subset of the costs actually taken
into account in establishing actuarially sound rates. The following provides a summary
of our key recommendations to ensure that these principles are taken into account:
1. Approach for Calculating the MLR Ratio: Given that PPACA recognizes the
important interest in maintaining an effective system of state-based insurance
regulation, we support a state-based approach under which a loss ratio would be
calculated for each insurance holding company group in each of the three market
segments – large group, small group and individual. We also support making
appropriate actuarial or statistical adjustments where the scale of enrollment
being taken into account in the MLR calculation could create unintended
volatility that drives up the cost of coverage for consumers and reduces available
choices in the market.
In addition, the particular challenges of large employers should also be taken into
account. Large employers often have multiple work sites and employees in many
states. Reflective of this structure, carriers do not generally report MLR
information on a state-by-state basis. Consequently, requiring carriers to
calculate the MLR for large groups using the same precise rules as those for
individual and small group coverage could result in significantly higher
administrative costs at a time when carriers are being required to hold these
expenditures to a minimum9.
9 The issues to be addressed in considering the circumstances of large-group coverage have been recognized elsewhere. According to the economist James Robinson, "This obscure statistic [the MLR] is losing whatever meaning it once had."
16
2. Creditability Adjustment: As noted, any solution to address these concerns
should ensure accurate distribution of administrative expenses and conform
calculation of the MLR with the accounting principle of matching costs to
associated premiums. It should also recognize the need to ensure appropriate
levels of statistical credibility as explained below.
Also critical to maintaining stability in coverage is to recognize that blocks of
individual and group policies may be credible for MLR calculation purposes, that
is, may have sufficient scale, at the national level but not at the state level, or they
may be credible in some states, and not credible, that is, may not have sufficient
scale, in others, or they may be credible within one reporting entity and not in
another affiliate.
One way to address this issue is to adopt a modified version of the credibility
adjustment table that is included in the NAIC Annual Medicare Supplement
Refund Calculation form adjusted for a non-Medicare Supplement population.
The new MLR standards must guard against the unintended effect of causing
volatility that results from normal variation in experience, and that could drive up
the cost of health insurance coverage for consumers and reduce their choices in
the marketplace. New regulations should build on the experience and lessons
learned from the calculations designed for the NAIC Medicare Supplement loss
ratio standards. However, the specific standard adopted for the commercial
health insurance market would need to be adjusted to factor in the diversity and
wider variation of claims costs experienced in comprehensive benefit plans for a
non-Medicare Supplement population.
The NAIC methodology addressed some of the claim variation by adopting a
credibility or tolerance adjustment to the MLR based on the number of
policyholders and the length of time they held their policies. Adjustments
decrease as the number of policyholder years increases.
If a credibility adjustment is not included in the MLR calculation, it will result in
unstable premium rates due to claims volatility, and the possibility of large
premium increases as the policy experience matures. In addition, claims
volatility could cause a health plan’s experience to fall below the MLRs minimum,
leading to the payment of rebates and generation of financial losses solely
because of volatility in experience (without any corresponding offsets in years
where the experience is above the MLR threshold due to the same volatility).
He notes one particular issue with the MLR as: "Efforts to compute the medical loss ratio for any one geographic region require the parent company to allocate central administrative expenses to particular regions. This is particularly problematic when some products, such as those for federal employees or large corporations, are marketed and managed at the national level." (Robinson, James. "Use and Abuse of the Medical Loss Ratio to Measure Health Plan Performance." Health Affairs, Volume 16, Number 4, p. 176-187.)
17
This dynamic could create solvency issues for health plans, forcing plans to exit
the market or discouraging them from entering new states. Similarly, the ability
to offer new products would also be compromised unless a minimize size
threshold for MLR credibility purposes is devised. The overall impact of these
negative, unintended effects would be to leave consumers with less affordable
coverage options due to the lack of market competition, and to risk disrupting
coverage for existing policy holders.
2. “What are the pros and cons associated with using various possible geographic
level(s) of aggregation (e.g., State level, national, etc.) for medical loss ratio-related
statistics in these same contexts (i.e., submitting medical loss ratio-related statistics
to the Secretary, publicly reporting this information, determining if rebates are
owed, and paying out rebates)?”
See answer to C.1. above.
D. Data Submission and Public Reporting
1. “To what extent do States or other entities currently require annual submission of
actual medical loss ratio related statistics for the individual, small group, and large
group markets? How do these current requirements compare with the requirements
in PPACA?”
See Attachment B.
In addition, the NAIC requires health plans to report an ―Accident and Health Policy
Experience Exhibit‖ by April 1 of each year. This Exhibit does not divide experience
across the individual, small group, and large group markets.
2. “How soon after the end of the plan year do States and other entities typically
require issuers to submit the required MLR-related statistics? What are the pros
and cons associated with various timeframes?”
States have various due dates for MLR reporting. The NAIC requires MLR data to be
submitted by April 1 of each year.
The Medicare Supplement Refund calculations and reports are due by May 31 of each
year. This due date was developed with the intention that companies would use actual
premiums paid and claims paid after the year-end and potentially through the month of
April to develop a more precise year-end estimate of premium revenue and claims costs.
The approach utilized by the Medicare Supplement program would allow health plans
subject to Section 2718, especially small health plans for whom accuracy would be key,
time to more definitively calculate their collected premiums and paid claims.
18
3. “What kinds of supporting documentation are necessary for interpreting these
kinds of statistics? What data elements and format are typically used for submitting
this information?”
Health plans should be required to maintain documentation regarding their MLR for a
time-period sufficient to allow for adequate look-back of compliance with Section 2718.
Current data elements are submitted in the context of the NAIC blanks. As noted in the
response to RFI Question B.3.b, those definitions will need to evolve to account for
unique PPACA elements.
4. “What methods do issuers use for purposes of submitting medical loss ratio-
related data to these entities (for example, electronic filing and paper filing)?”
Most States allow for the electronic filing, however some require paper filing, especially
in the health plan’s State of domicile. MLR data is typically filed with a State through the
NAIC’s System of Rate and Form Filing (―SERFF‖). When available, health plans
prefer to file electronically.
5. “To what extent is MLR-related information submitted to States or other entities
currently made available to the public, and how is it made available (for example,
level of aggregation, and mechanism for public reporting)? What are the pros and
cons associated with these various methods?”
Statutory financial statement information is contained in public reports such as the NAIC
Annual Statement blank and related supplements. The NAIC makes certain portions of
the Annual Statement available online. Each State has its own rules regarding public
access to annual statement filings, but all States make some portions of the annual
statement filings available in some format to the public.
6. “Are there any industry standards or best practices relating to submission,
interpretation, and communication of MLR-related statistics?”
Rate review filings that contain MLR-related statistics generally require certification by
a qualified actuary that the proposed rate is reasonable in light of the benefit package
offered to accompany the submission. The qualifications are generally related to
membership in a professional actuarial body that subjects its members to standards of
professional conduct, such as the American Academy of Actuaries and the Society of
Actuaries. In addition, the Actuarial Standards Board develops Actuarial Standards of
Practice specific to certain aspects of actuarial practice, including the review of MLR-
related statistics.
7. “What, if any, special considerations are needed for non-calendar year plans?”
Policies to cover individuals or groups are issued and renewed starting at various times
throughout the calendar year. Premiums often change on the renewal date. Where the
distribution of policy issue/renewal dates is evenly distributed or does not change from
19
one calendar year to the next, which is generally the case for most health plans, the use
of calendar year data is a reasonable approximation of data for other 12 month periods.
This would also facilitate industry transparency because consumers would not be
required to continuously visit the Department of Health and Human Services’ website to
compare MLRs.
E. Rebates
1. “To what extent do States and other entities currently require MLR-related
rebates for the individual, small group, large group, and/or other insurance
markets, and how are these rebates calculated and distributed?”
See Attachment B.
Generally, we note that only six States require premium refunds, rebates, dividends or
credits when the health plan fails to meet certain MLR requirements. The methods by
which those six States calculate and distribute the rebates is varied.
The Medicare Supplement market has a refund requirement if plans do not meet certain
MLR requirements. Federal law requires that those refunds be calculated annually, for
each ―Plan‖ (standardized Medicare Supplement letter plan), ―Type‖ (separates
Individual from Group and normal Medicare Supplement from Medicare Select), and
State.10
In order to use credible experience, in many States several years’ experience
needs to be accumulated for most Plans, and indeed, greater pooling of Plans has been
considered. The refund formula uses each year’s new issues premium as a base for
projecting an expected MLR over the next period of years. This allows the development
of a weighted average ―benchmark‖ MLR to be determined. The company’s cumulative
MLR to date, adjusted to reflect less than full credibility, is compared to this benchmark.
If the MLR benchmark is higher, the difference in MLRs multiplied by the earned
premium is defined as the ―refund amount‖ This refund amount is subject to a de
minimus standard.
2. “How soon after the end of the plan year do States and other entities currently
require issuers to determine if rebates are owed?”
States have various timeframes for determining whether rebates are owed.
Under the Medicare Supplement program, health plans must report whether rebates are
owed by May 31 of each year and distributed, with interest, to policyholders by
September 30 of each year for the previous calendar year.
3. “What are the pros and cons of various timeframes and methodologies for
calculating rebates?”
10 42 U.S.C. § 1395ss(r).
20
The Medicare Supplement program’s approach to determining and distributing owed
rebates has been in place for over 15 years and has provided adequate time for accurate
assessments of rebates that may be owed while protecting policyholders’ interests. We
recommend adoption of this program’s methodology when rebates are required.
4. “How do States and other entities currently determine which enrollees should
receive medical loss ratio-related rebates? What are the pros and cons associated
with these approaches?”
States generally require payment to the policyholder. This is important in the group
markets because of the large variation in the portion of premiums paid by employers and
employees. As the employer is typically the policyholder, the rebate should be provided
to the employer who can then allocate the rebate between itself and its employees
consistent with the percentage of premiums each pays. In the individual market, the
payment goes to the individual policyholder.
In the Medicare Supplement program, the refund is paid to policyholders in force at the
end of the calendar year for which the refund is calculated.
5. “What method(s) do States and other entities currently require issuers to use
when notifying enrollees if rebates are owed, and paying the rebates? What are the
pros and cons associated with these approaches?”
Health plans usually notify policyholders directly of rebates disbursed.
6. “Are there any important technical issues that may affect the processes for
determining if rebates are owed, and calculating the amount of rebates to be paid to
each enrollee?”
Health plans should utilize the range of methodologies for determining whether MLR
rebates are owed or the amount to be paid each enrollee, within guidelines established by
the NAIC and certified by the Secretary. This provides the needed flexibility for various
facts and circumstances. In addition, there should be a de-minimus exception to the
requirement to provide a rebate when the administrative costs of processing and
delivering the rebate exceeds the actual rebate amount.
G. Enforcement
1. “What method do States and other entities currently use in enforcing medical
loss-ratio-related requirements for the individual, small group, large group, and
other insurance markets (for example, oversight and audit requirements)? What
other methods could be used?”
Currently, State solvency oversight provides thorough regulatory oversight of the
operations of health insurers. As part of that oversight, health plans are required to file
a detailed financial report on a quarterly basis with their State regulator. In order to
21
participate in the NAIC’s accreditation program, of which all States are participants, a
State must meet rigorous standards for statutory authority as well as for resources and
personnel training. States are reviewed not only for statutes and resources, but also to
ensure that the States are actually using the tools and resources available to them. The
NAIC’s accreditation program of state oversight, takes place periodically: every two
years for an interim accreditation review and every five years for a full accreditation
review. This system ensures that all States have the same rules that are being similarly
enforced.
Part of the State’s solvency oversight responsibility is to review the detailed financial
statements as they are filed. This involves the review of the company’s financial position
over time by comparing their current results to their historical results. Part of this
requires review of the MLR and the operating ratio from a solvency perspective. The
States require not only the NAIC-developed annual and quarterly statements, but also
State specific ones to ensure that State-specific requirements have been met.
Compliance with MLR requirements are reviewed at the time these reports are filed.
In addition, the health plan’s annual financial statement is subject to an external audit by
an accounting firm. This provides the States with comfort that allocations of key items
are being done in a fair and consistent manner. During the financial examination, State
regulators review the details behind the health plan’s various financial filings and will
determine independently of the annual and quarterly statements whether the health plan
met specific regulatory standards.
The accreditation program has been developed in great detail over many years, the latest
significant change of which has been the implementation of the Sarbanes–Oxley Act of
2002.11
It has worked well since its inception to ensure that States have appropriate
levels of oversight and appropriate ability to both find and correct marketplace financial
issues as they occur.
2. “What if any, penalties do these entities currently apply relating to
noncompliance with medical loss-ratio-related requirements? What, if any, related
appeals processes are currently available to issuers?”
States have a variety of tools available to enforce MLR requirements. If health plans fail
to meet the State’s requirements, such as filing requirements for enforcement and
oversight purposes or failure to make a required rebate payment, the State has a
significant number of tools at its disposal, including administrative orders demanding
compliance, imposition of fines, and, the ultimate sanction, placement of a health plan
into receivership. It is critical that any decision regarding appropriate enforcement
mechanisms be linked specifically to solvency oversight and responsibility. Fines and
penalties should be consistent with the level of noncompliance and should not be levied to
the point of placing an health plan into rehabilitation or receivership. The overarching
11 Pub. L. No. 107-204.
22
regulatory goal should always be to ensure that a company is sufficiently solvent to be
able to meet its obligations to policyholders not only today but into the future.
Calculating rebates, paying rebates, and documenting the process will be extremely time
and resource intensive. It is important that there be clear guidance regarding who is
eligible for a rebate and how a fair sharing of the rebate total is to be determined. This
is especially the case in these early years of implementing these new requirements. It
also is important for an health plan to be provided appropriate due process rights to
appeal any preliminary decision by regulators regarding penalties.
H. Comments Regarding Economic Analysis, Paperwork Reduction Act, and
Regulatory Flexibility Act.
We encourage the Secretary to use the proposed rulemaking process instead of issuing
regulations in interim final form. There is sufficient time to allow for notice and
comment procedure, this process is vital and necessary to a successful implementation of
Section 2718, and the interests of the public are best served by allowing for transparency
and meaningful opportunity for public input. Consequently, the process for proposed
rulemaking should not be waived.
As reflected in the RFI, the implementation of the MLR involves many different factors
and variables. This is a very technical and complex area that has a significant impact on
consumers, employers, and ―health insurance health plans‖ for the group and individual
markets. As a result, it is critical that the public receive as much advance notice as
possible of the Secretary’s proposed rulemaking to establish and implement the process
and rules under which the MLRs will be calculated. This, in turn, will ensure that the
Secretary has sufficient time to fully digest and consider comments. If the less
deliberative interim final rulemaking with a comment period is utilized, then the
Secretary should include some time period endpoints so that there is review by the
relevant agencies of the filed comments and subsequent final rulemaking. Any interim
final rules should be considered a temporary gap measure toward final rulemaking and
not remain as interim final for any extended period of time.
Further, as discussed below, any rulemaking on the premium review process would be
subject to: (1) economic analysis as a ―significant regulatory action‖; (2) regulatory
flexibility analysis under the Regulatory Flexibility Act; (3) analysis under the
Paperwork Reduction Act to minimize information collection burdens; (4) analysis under
§ 202 of the Unfunded Mandates Reform Act of 1995 (―UMRA‖) to permit input from
state and local governments regarding significant unfunded expenditures by such
entities; and (5) analysis under Executive Order 13132 to adhere to fundamental
federalism principles. As a result, a thoughtful rulemaking process (as opposed to an
interim final rule) is important to meaningful review and comment from the public on
these particular regulatory procedural analyses.
23
While it is unclear how the Secretary’s forthcoming rulemaking will address the factors
and variables laid out in the RFI, we believe these variables and factors alone confirm
that the forthcoming rulemaking will constitute a ―significant regulatory action‖ under
Executive Order 12866. The rulemaking would not be implemented in isolation but as
part of the larger implementation of health benefit reforms to the group and individual
insurance markets. As a consequence, it clearly would qualify as a ―significant
regulatory action‖ because such rule may have an annual effect on the economy of $100
million or more, may materially and adversely affect a sector of the economy, and/or may
materially and adversely affect public health. Indeed, the implementation of the health
care reforms under PPACA are analogous to the ―significant regulatory actions‖ to
implement Medicare Part D.12
As the rulemaking will qualify as a ―significant regulatory action,‖ it will be subject to
an economic review and analysis by the OMB Office of Information and Regulatory
Affairs (―OIRA‖). Specifically, as part of this review, the Secretary must provide OIRA
with a quantification of the anticipated benefits (to the extent possible), a cost-benefit
analysis of reasonable alternatives, and ―an explanation of why the planned regulatory
action is preferable to the identified potential alternatives‖.13
The rulemaking also would be subject to regulatory flexibility analysis under the
Regulatory Flexibility Act (―RFA‖). The RFA requires agencies to conduct regulatory
flexibility analysis when a regulatory action is likely to have a significant economic
impact on a substantial number of ―small entities‖. In particular, there are a significant
number of ―small organizations‖ that issue health benefit plans and may be significantly
impacted by any regulatory action on the premium review process. This conclusion is
supported by the Secretary’s regulatory flexibility analysis pertaining to the
implementation of Medicare Part D prescription drug plans. As a result, the Secretary
must conduct a regulatory flexibility analysis and this necessarily includes, but is not
limited to:
A description of and, where feasible, an estimate of
the number of small entities to which the proposed
rule will apply; . . .
A description of the projected reporting,
recordkeeping and other compliance requirements
of the proposed rule, including an estimate of the
classes of small entities which will be subject to the
12 See 70 Fed. Reg. 4194, 4454 (Jan. 28, 2005) (final rule implementing regulations for PDPs where CMS found the
rulemaking was a “significant regulatory” action”).
13 See Exec. Order 12,866.
24
requirement and the type of professional skills
necessary for preparation of the report or record.14
Each initial regulatory flexibility analysis also must contain a description of any
significant alternatives to the proposed rule that both accomplish the stated objectives of
the applicable statute(s) and minimize any significant economic impact of the proposed
rule on small entities.15
Further, the Secretary should conduct analysis under the Paperwork Reduction Act
(―PRA‖) to both minimize the information collection burden imposed by any rulemakings
on the premium review process and ensure the greatest possible public benefit from and
maximize the utility of information created, collected, and maintained by the Federal
Government.16
When an agency seeks to impose an information collection process such
as through premium review process, the PRA specifies that the agency must conduct a
review under the PRA in advance of adopting the information collection process. If the
agency elects to adopt the information collection process through a proposed rulemaking
process (as we expect here), then the proposed rule must include, among other things:
(1) a brief description of the need for the information and the proposed use of the
information; and (2) an estimate of the burden that shall result from the collection of
information.17
Finally, the Secretary should conduct state and local impact analysis pursuant to URMA
and Executive Order 13132. Specifically, the Secretary should conduct a qualitative and
quantitative assessment of the anticipated costs and benefits of Federal mandate(s) that
may result in significant expenditures by state and local governments pursuant to the
Unfunded Mandates Reform Act of 1995.
14 5 U.S.C. § 603(b).
15 5 U.S.C. § 603(c).
16 See 44 U.S.C. § 3501.
17 44 U.S.C. § 3507(a)(1)(D).
APPENDIX A.1
Institute of Medicine and AHRQ Quality Criteria
Institute of Medicine quality criteria
In its landmark publication, Crossing the Quality Chasm, the IOM stated that enhancing quality
in our health care system requires a focus on six core aims:
Safety: avoiding injuries to patients from the care that is intended to help them
Effective: providing services based on scientific knowledge to all who could benefit and
refraining from providing services to those not likely to benefit (avoiding underuse and
overuse, respectively)
Patient-centered: providing care that is respectful of and responsive to individual patient
preferences
Timely: reducing waits and sometimes harmful delays
Efficient: avoiding waste, including waste of equipment, supplies, ideas, and energy
Equitable: providing care that does not vary in quality because of personnel
characteristics
AHRQ quality criteria
AHRQ – which consistently refers to the IOM’s criteria1 – notes that there are similar facets to
health care quality. According to AHRQ’s consumer Guide to Health Care Quality, “quality
health care is:
Doing the right thing (getting the health care services you need).
At the right time (when you need them).
In the right way (using the appropriate test or procedure).
To achieve the best possible results.
Providing quality health care also means striking the right balance of services by:
Avoiding underuse (e.g., not screening a person for high blood pressure).
Avoiding overuse (e.g., performing tests that a patient doesn’t need).
Eliminating misuse (e.g., providing medications that may have dangerous interactions)”.
1 E.g., AHRQ, National Healthcare Quality Report 2009 available at www.ahrq.gov/qual/qrdr09.htm;
AHRQ, National Healthcare Disparities Report 2009 available at www.ahrq.gov/qual/qrdr09.htm; and Carolyn
Clancy, Director, AHRQ, Statement before the Subcommittee on Health Care, Committee on Finance, U.S. Senate,
March 18, 2009.
2
APPENDIX A.2
Activities Referred to as Quality Activities in the Health Care Law
Many of the categories of activities listed on pages 10-11 have been referred to as quality
activities in the health care law. For example:
Section 2717 Activities. Section 1001 of PPACA, Amendment to Section 2717 of the PHSA,
“Ensuring the Quality of Care” lists a number of quality improvement activities which health
plans would have to report to the Secretary. These activities – which, as the title of Section
2717 indicates, would ensure quality of care – include:
o Quality reporting;
o Effective case management;
o Care coordination;
o Chronic disease management;
o Medication and care compliance initiatives;
o Patient-centered education and counseling, comprehensive discharge planning, post
discharge reinforcement by an appropriate health care professional, and other activities to
prevent hospital readmissions;
o Activities to improve patient safety and reduce medical errors through the appropriate use
of best clinical practices, evidence based medicine, and health information technology
under the plan or coverage; and
o Wellness and health promotion activities.
It is also important to note that this section’s language, when listing the activities, uses the
terms “such as” and “including”. These terms indicate that the activities listed are not
exclusive.
Value-Based Purchasing Initiatives, Such as Pay-For-Quality Initiatives. The programs
and activities under Title III, Subtitle A, Part I, “Linking Payment to Quality Outcomes
Under the Medicare Program” are, as the title suggests, aimed at improving quality
outcomes. They include quality reporting programs and providing financial incentives to
hospitals and physicians to deliver higher quality care to patients.
Patient-Centered Medical Home and Continuous Quality Improvement Activities, such as
Medication Management. The programs in Title III, Subtitle F, “Health Care Quality
Improvements”, are, as the title indicates, activities which improve health care quality. They
include establishing community health teams to support the patient-centered medical home
(Section 3502) and medication management services in the treatment of chronic disease
(Section 3503).
Activities Related to the Development and Maintenance of Provider Networks. The
language in Section 10327, “Improvements to the Physician Quality Reporting System”,
refers to Maintenance of Certification Programs – an activity related to the development and
maintenance of provider networks – as an activity that “advances quality and the lifelong
3
learning and self-assessment of board certified specialty physicians by focusing on the
competencies of patient care, medical knowledge, practice-based learning, interpersonal and
communication skills and professionalism.”
Examples Which Demonstrate the Benefits of Health Plan/Issuer
Quality Improvement Activities to Patients
Plans and health plans have developed and implemented countless initiatives aimed at improving
health care quality and patient outcomes. Below are examples of how the activities listed on
pages 10 - 11 of this letter benefit consumers by improving health care quality and patient
outcomes.
Programs to Ensure Patient Safety. Health plans have developed e-prescribing programs to
improve patient safety by reducing the risk of errors due to illegible handwriting and a reduction
in adverse drug events. One plan reports that approximately 104,000 prescriptions had been
changed or cancelled as a result of e-prescribing messages that flagged possible safety issues.
Newly published research has demonstrated that this prevented an estimated 724 potential
adverse drug events (ADEs).
Investments in Health Information Technology. A health plan launched a state-wide infection
control program involving 22 acute care hospitals. The program uses sophisticated surveillance
technology to detect patterns and provide tools for infection prevention in hospitalized patients.
From fall of 2005 to summer 2008, there has been a 15 percent reduction in the rate of hospital
acquired infections.
Wellness and Prevention.
A health insurance plan’s tobacco cessation program provides tobacco users with web-based
and telephonic counseling services to help them quit. Health coaches/counselors are nurses,
health behavioral specialists, and other health professionals who go through a rigorous
training program and receive continuing education. In addition to counseling, participants
have access to other materials as well as over-the-counter nicotine patches or nicotine gum at
no extra cost. Almost 4,000 tobacco users access the program every year, and after 6 months,
86% of those who quit are still tobacco free, while 12% show reduced use.
A health plan provides a health coaching program that enables participants to receive
personalized, tailored counseling and coaching services to reduce their risks and improve
their health. Participants who have chronic conditions work with a personal nurse, while
participants who wish to improve their lifestyles work with certified health educators. Over
52% of participants remain smoke-free after 6 months; over 57% of participants lost weight
and of those participants who have a body mass index of >30 and therefore are classified as
obese, 29% lost more than 5% of their body weight; and 47% of participants improved and
can better manage back pain.
4
A health plan recently developed a program to promote immunizations. Interactive Voice
Response (IVR) systems telephone parents with the lists of vaccines that their children need
to receive to be up-to-date on current recommendations. Strategies such as developing and
providing resources for vaccine providers (physicians, nurses and clinicians) and health
insurance plan members have resulted in increased (increases of approximately 10-15% )
health measure performance that fall within national health objectives goals of childhood,
adolescent and adult immunization over a two-year timeframe.
Care Coordination and Disease Management.
To address avoidable hospital readmissions among members with heart failure, a health plan
enhanced its disease management program in 2007 by doing additional outreach to members
discharged from hospitals with heart failure, chronic obstructive pulmonary disease, coronary
artery disease and asthma. The program’s approach included conducting post-discharge
follow-up calls, arranging in-person visits to review medications, encouraging patients to
participate in a health tracking program where patients work with a multidisciplinary team of
professionals including nurse health coaches, behavioral health case managers and
pharmacists, and conducting in-home monitoring. From 2007-2008, hospital admissions
related to heart failure dropped by: (1) 37% for members with commercial HMO coverage;
and (2) 45% for Medicare Advantage members.
Community asthma educators at a health plan work with primary care providers to
implement comprehensive asthma management in provider offices leading to 42 percent
decrease in members with asthma using the ER for asthma-related treatment and a 31 percent
decrease in asthma-related hospitalizations. Additionally, asthma health coaches, who are
referred by a PCP, work one-on-one with members to achieve self management and
empowerment. Overall, the plan has achieved a 58 percent decrease for asthma related
hospitalizations and 44 percent decrease in medical costs for members who have specifically
worked with the plan’s health coaches.
To increase life expectancies for members who have had heart attacks, nurse case managers
at a health plan contact heart attack patients within seven days of their hospital discharge to
verify that beta-blocker medications were prescribed. The health plan also offers ongoing
case management to help heart attack patients develop care plans, access services such as
smoking cessation and rehabilitation programs, and live healthy lifestyles. From 2004 to
2006, 100% of members who had heart attacks received beta-blockers, a treatment based on
an evidence-based clinical guideline, within seven days of their hospital discharge.
Value-Based Purchasing Initiatives, Such as Pay-for-Quality Initiatives. A plan developed a
primary care physician incentive program which offers incentives for achieving quality goals and
provides physicians with the data and tools they need to reach these goals. The program uses
adult process and outcome measures, including chronic care measures for hypertension (blood
pressure values), cardiovascular (LDL-C and blood pressure values), and diabetes (Hemoglobin
A1c, LDL-C and blood pressure values). It also uses pediatric process and outcomes measures,
including well child and well teen visits and weight control. The program has seen positive
results. For example, well adolescent visits improved from 56% in 2000 to 76% in 2007, and
diabetic HbA1c tests improved from 85% in 2000 to 93% in 2007.
5
Consumer Education Programs, Including Programs to Address Health Care Disparities.
A health plan created a faith-based wellness program to improve the quality of life of African
American women through education and healthy living. African Americans’ incidence of
diabetes is more than twice that of Caucasian Americans, and the incidence rate of heart
disease and stroke is 30 percent higher than for non-minorities. The program collaborated
with churches and community organizations to focus on nutrition education, exercise, water
intake, and medication compliance, which resulted in positive health improvements among
women with diabetes. Findings of the program resulted in a nearly 20 percent drop in
triglycerides; a 22 percent decrease in LDL cholesterol; a 17 percent reduction in fasting
blood sugar; and a 4.6 percent weight reduction (3 percent for women with type 1 diabetes)
among participants. The women also reported high satisfaction, and on average reported a 73
percent improvement in pain and 81 percent improvement in mobility and flexibility.
Using multiple provider and member intervention strategies, a Medicaid health plan
addressed low preventive screening rates among African American men resulting in an
increase, from 7 percent to 19.4 percent, in preventive exams and recommended testing. The
health plan worked with targeted provider offices in high-disparity geographic areas to
educate practitioners on US preventive service guidelines and proper claims coding to
monitor outcomes. Male outreach reminder calls, personalized health messages and disease
management brochures to encourage preventive screenings and health visits were also
provided to members. Specific testing rates increased from 17.4 percent to 41.8 percent for
prostate cancer screening in men age 40 and over; 15.9 percent to 49.5 percent for
cholesterol, and 8.6 percent to 19.7 percent for colorectal cancer screenings among African
American men 50 and over.
Continuous Quality Improvement Activities, Such as Medication Therapy Management
(MTM). Members in a health plan who received MTM services at six ambulatory care clinics
received substantial benefits, as compared with similar patients who did not receive services.
Approximately 640 drug therapy problems were resolved among almost 300 patients, and the
percentage of patients who achieved therapy goals increased from 76% to 90% during one year
of MTM services.
Patient-Centered Medical Homes. Many health plans are establishing medical home initiatives
to improve primary care for patients and physicians. One health plan initiative, among other
things, built new information systems that enabled electronic health records and registries to
track care for patients with chronic conditions; increased the range of services that primary care
practices provide; offered additional support for patients with chronic conditions; focused on
providing patients who have been hospitalized with a smooth post-discharge transitions;
provided on-site support for nursing home patients; and provided medical home practices with
bonus payments for meeting quality and efficiency goals. Among patients at the medical home
sites from 2006-2008: (1) the number of hospital readmissions fell by 20 percent; and (2) the
number of hospital admissions fell by 18 percent.
© America‘s Health Insurance Plans May 2010
Appendix B
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations (as of May 12, 2010)
Background: Medical loss ratios (MLRs) for comprehensive, major
medical health insurance products have been employed for diverse purposes by a broad range of users, including insurance companies,
managed care companies, legislators, regulators, investors, lenders,
and consumer advocates.
Some of the uses include the evaluation of an organization‘s
performance by management and investors, providing consumers
with information on the relative quality of competing health plans,
projecting future earnings growth of health maintenance
organizations (HMOs), and testing products against minimum loss ratio standards.
Loss ratios have also been proposed as a method to compare and
evaluate insurers and managed care organizations in a variety of
ways. Proposed uses include health insurance illustration requirements, accounting standards, consumer quality measures,
and solvency regulation.1
Federal Health Care Reform: In 2010, President Obama signed into
law the Patient Protection and Affordable Care Act, followed the
Health Care and Education Reconciliation Act of 2010. The bills (as
1 Excerpted from ―Loss Ratios and Health Coverages,‖ Loss Ratio Work
Group, American Academy of Actuaries, November 1998.
enacted) amend the Public Health Service Act to require medical loss
ratios of 85 percent for large group products and 80 percent for small group and individual products, effective January 1, 2011. The bill
requires health insurance issuers failing to meet the requirement to
provide rebates to policyholders, and permits the Secretary of Health and Human Services (in coordination with the National Association of
Insurance Commissioners) to adopt standard definitions for
calculating claims costs and non-claims costs.
NAIC model: In 1980, the National Association of Insurance
Commissioners (NAIC) adopted the Guidelines for Filing of Rates for
Individual Health Insurance Forms (Guidelines). The Guidelines establish loss ratios as a standard for determining whether benefits
under individual medical expense policies are reasonable in relation to
premiums. Generally, the Guidelines use the following minimum loss
ratios for new forms for purposes of deeming that premiums are reasonable for the indicated type of policy:
optionally renewable (renewal is at the option of the
insurance company) - 60%; conditionally renewable (renewal can be declined by class,
by geographic area, or for stated reasons other than
deterioration of health) - 55%; guaranteed renewable (renewal cannot be declined by the
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 2 May 2010
insurance company for any reason, but the company can
revise rates on a class basis) - 55%; and non-cancelable (renewal cannot be declined and rates cannot
be revised by the insurance company) - 50%.
There are no similar NAIC Guidelines for small group products.
Reporting Requirements: Section 1(B) of the NAIC Guidelines
requires that each rate submission include an actuarial memorandum
describing the ―anticipated loss ratio‖ for that rate and the method by
which it was calculated.
Section 1(C) of the NAIC Guidelines requires that each time a rate
revision for a previously approved policy, rider or endorsement
form is filed, the loss ratio be submitted with a history of the
experience under the current rate.
Approaches: Thirty-four states (AZ, AR, CA, CO, CT, DE, FL, GA,
IA, KS, KY, ME, MD, MA, MI, MN, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, SC, SD, TN, UT, VT, VA, WA, and WV) establish
MLR guidelines, require the filing or reporting of loss ratio
information with state regulators, or impose limitations on administrative expenses for comprehensive, major medical insurance.
MLR requirements in the Individual Market: Ten states (AZ, DE, IA,
KS, MA, NC, SC, TN, UT, and VA) have adopted the NAIC Guidelines for use in their respective individual markets.
MI, NH and SD have adopted loss ratio structures that are very
similar to the NAIC Guidelines.
Thirteen states impose specific MLR requirements for products
sold in the individual market: PA imposes an initial 50 percent MLR and a 60 percent
renewal MLR;
ND requires a 55 percent MLR; MD mandates a 60 percent MLR;
WV mandates an initial 60 percent MLR, but requires 65
percent for requested rate increases;
CO, KY, and ME require a 65 percent MLR;
CA and VT mandate a 70 percent MLR;
MN establishes a general 72 percent MLR, with a reduction to 68 percent for companies assessed less than 3 percent of the
total annual assessment by the state‘s high-risk pool;
WA establishes a general 74 percent MLR, with an increase up to 77 percent for organizations with a declination rate in
the individual market of more than 8 percent;
NM permits the Division of Insurance to set minimum MLR
requirements, but establishes a floor of 75 percent beneath which the requirement may not go;
NY requires a 75 percent MLR; and
NJ establishes an 80 percent MLR.
MLR requirements in the Group Market2: Two states (AZ and UT)
implemented the NAIC Guidelines for their entire group markets.
DE extends the NAIC Guidelines for its small group market
for employers with 24 or fewer employees.
MI and NH adopted a loss ratio structure that is similar to the
NAIC Guidelines for its small group market.
Nine states (CO, KY, ME, MD, MN, NJ, NY, OK, and WV)
impose mandatory MLR on small employer products sold in their
respective states that range from 60 to 82 percent.
Three states (FL, ND, and SD) set minimum MLRs, ranging from
65 to 75 percent, across their entire group markets.
CO also imposes an 75percent MLR for products sold in the
state‘s large group market.
NM imposes an 85 percent MLR for products sold in the state‘s
large and small group markets.
Other Approaches: Rather than establishing a minimum MLR
requirement, laws in four states (CA, NJ, OH, and TN) require either
2 Unless otherwise noted, references to the small group market here conform
to standards included in the Health Insurance Portability and Accountability
Act (HIPAA) defining small groups as groups having between two and fifty
eligible employees. For details regarding state-specific small group size,
please see the entry included in this chart for the applicable state.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 3 May 2010
HMOs or certain types of insurance companies to limit administrative
expenses to a specified percentage of premiums.
Two states set loss ratio requirements by type of organization –
NJ health service corporations must meet a 75 percent MLR and
NC HMOs must meet MLRs that range from 55 to 75 percent
based on type of product.
Four states mandate specific MLRs by type of product -- AR
(point-of-service and minimum basic benefit plans), CA (mass-
marketed policies), CT (special health care plans for small
groups), and SD (short-term medical).
Filing and Reporting Requirements: Fourteen states (CO, DE, FL,
ME, MD, MN, NH, NJ, NY, OR, UT, VA, WA, and WV) generally
require the submission of loss ratio data with rate filings.
AR, CT, and GA require the filing of loss ratio guarantees for the
individual market, while OR requires such a filing for both its
individual and group markets.
Six states (IA, KS, KY, MA, PA and TN) mandate the submission
of an actuarial certification of the loss ratio with any rate filings in
the individual market. CA and MI impose a similar requirement for its individual
and group markets.
KY requires an actuarial certification of the MLR for rate filings in the small group market.
Some states (AR, CT, GA, NJ, OR, and WA) have specific filing
or reporting requirements for certain products or entities that
mandate the disclosure of MLR data without imposing an accompanying specific loss ratio requirement.
Premium Refunds, Dividends or Credits: MLR laws in seven states –
ME, NJ, NM, NY, NC, SC and WV – require carriers to issue a dividend, credit or refund to policyholders for failure to comply with the
requirements.
In WA, failure to comply with the requirements results in a
required remittance by the carrier to the Washington State High Risk Pool.
NH requires requested rate increases to be offset against any
levels by which the prior rate failed to meet required loss ratio.
2010 state activity: To date, two states have adopted new MLR
requirements in 2010 for comprehensive, major medical coverage:
NH has adopted loss ratio requirements similar to the NAIC
model based on product renewability, but has incorporated higher
MLR thresholds.
NM implemented loss ratio requirements of 85 percent (large and
small group) and 75 percent (individual).
Chart: This chart contains detailed information on the NAIC
guidelines and the thirty-two (34) state MLR or administrative cost
requirements for comprehensive, major-medical type coverage offered in the individual and group markets. If the statute or regulation
establishing the requirement also contains definitions of either MLR or
administrative costs, those are also shown. The document also
provides information on specific state filing and reporting requirements for MLRs or administrative costs, where applicable.
This chart does not include state mandatory minimum MLR
requirements for long-term care, Medicare supplement and/or
disability income insurance. For state MLR laws for these supplemental health products, please see the companion document
to this chart – State Mandatory Medical Loss Ratios (MLRs) for
Long-Term Care, Medicare Supplement, and Disability Income Insurance: Summary of State Laws and Regulations.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 4 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
“Patient Protection
and Affordable
Care Act” (Sec.
2718 of the Public
Health Service Act)
Enacted 2010
Effective 01/01/2011
Health insurers
Beginning not later than January 1, 2011, a health insurance
issuer offering group or individual health insurance coverage
(including a grandfathered health plan) shall, with respect to
each plan year, provide an annual rebate to each enrollee
under such coverage, on a pro rata basis, if the ratio of the
amount of premium revenue expended by the issuer on costs
described in paragraphs (1) and (2) of subsection (a) to the
total amount of premium revenue (excluding Federal and State taxes and licensing or regulatory fees and after
accounting for payments or receipts for risk adjustment, risk
corridors, and reinsurance under sections 1341, 1342, and
1343 of the Patient Protection and Affordable Care Act) for
the plan year (except as provided in subparagraph (B)(ii)), is
less than—
with respect to a health insurance issuer offering
coverage in the large group market, 85 percent, or such
higher percentage as a State may by regulation
determine; or
with respect to a health insurance issuer offering
coverage in the small group market or in the individual market, 80 percent, or such higher percentage as a State
may by regulation determine, except that the Secretary
may adjust such percentage with respect to a State if the
Secretary determines that the application of such 80
Directs the Secretary of the Department of Health
and Human Services, in consultation with the
National Association of Insurance Commissioners,
to establish uniform definitions.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 5 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
percent may destabilize the individual market in such
State. 3
3 § 1304(b)(2) of the Patient Protection and Affordable Care Act defines ―small employer” to mean an employer who employed an average of at least one but not
more than one hundred employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 6 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
NAIC
Guidelines for Filing
of Rates for
Individual Health
Insurance Forms
(Model 134)
Adopted 1980
Individual
Establishes the following anticipated loss ratios as ―safe
harbors‖ for new policies for determining the
reasonableness of benefits in relation to premiums:
optionally renewable (renewal is at the option of the
insurer) – 60%;
conditionally renewable (renewal can be declined by
class, by geographic area, or for stated reasons other
than deterioration of health) - 55%;
guaranteed renewable (renewal cannot be declined by
the insurer for any reason, but the insurer can revise
rates on a class basis) - 55%; and
non-cancelable (renewal cannot be declined and rates
cannot be revised by the insurer) - 50%.
Requires each initial rate submission to include an
actuarial memorandum describing the anticipated loss
ratio and the method used to calculate the loss ratio.
Requires the submission of loss ratio information, including a history of the experience under the current
rate, with any rate revision request for a previously
approved policy, rider or endorsement.
Anticipated loss ratio means the present value of
the expected benefits to the present value of the
expected premiums over the entire period for which
rates are computed to provide coverage.
The NAIC annual statement blank defines loss ratio
as ―a measure of the relationship between accident
and health (A & H) claims and premiums.‖
Arizona
Ariz. Admin. Code
R20-6-604; and R20-
6-607
Enacted 1981
Individual and
group
Follows the NAIC Model for policies with annual
premiums of at least $200.
For policies with annual premiums between $100 and
$200 subtract 5% from allowable MLRs.
For policies with annual premiums less than $100 and
subtract 10% from allowable MLRs.
Requires that each rate submission include an actuarial
certification of the loss ratio and the method of
calculation.
Actual loss ratio means incurred claims divided by
earned premiums at rates in use.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 7 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Arkansas
Ark. Code Ann. §23-
98-102; §23-98-110;
and Regulation 52
Enacted 1991, 1991,
and 1992
Minimum basic
benefit policies
Establishes MLRs of no less than:
65% for individual policies and group policies issued
to qualified trusts; and
75% for all other group policies.
Prohibits rates from being approved without a statement
certifying the reasonableness of benefits in relation to
premiums.
“Loss ratio” means the percentage derived by
dividing incurred claims, both reported and not
reported, by total premiums earned.
Arkansas
Ark. Code Ann. §23-
79- 110
Enacted 1991
Amended 2001
Individual
No specific MLR requirement.
Requires rate filings to contain a loss ratio guarantee in
order for the benefits of the policy to be deemed reasonable
in relation to premiums.
“Loss ratio” means the ratio of incurred claims to
earned premium by number of years of policy
duration, for all combined durations.
Arkansas
Ark. Code Ann. §23-
86- 404
Enacted 1999
HMOs
Establishes an MLR of no less than 80% for point of service
(POS) plans.
No definitions.
California
Cal. Health & Safety
Code §1378 and Cal.
Code Regs. Tit. 28,
§1300.78
Enacted 1976
HMOs (health care
service plans)
No specific MLR requirement.
Prohibits excessive administrative costs and considers them
reasonable if they do not exceed 25% during the
development phase or 15% in all other circumstances.
Administrative costs include:
salaries, bonuses, and benefits paid or incurred
with respect to the officers, directors, partners,
trustees, or other principal management of the
plan;
the cost of soliciting and enrolling subscribers
and enrollees;
the cost of receiving, processing, and paying claims, excluding the actual amount paid on
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 8 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
such claims;
legal and accounting fees and expenses;
the premium on the fidelity and surety bonds,
and any statutorily required insurance,
excluding medical liability insurance;
all costs associated with the establishment and
maintenance of provider agreements and the
cost of reviewing utilization of health care
services on a referral basis; and
the direct or pro rata portion of all expenses
incurred in the operation of the plan which are
not essential to the provision of health care
services, including but not limited to office
supplies and equipment, clerical services,
interest expense, insurance, dues and
subscriptions, licenses (other than licenses for
medical facilities, equipment or personnel),
utilities, telephone, travel, rent, repairs and
maintenance, depreciation of facilities and
equipment, and charitable or other contributions.
California
Cal. Code Regs. Tit.
10, §2222.10 to
§2222.12, and
§2222.19
Enacted 1961
Amended 2006
Individual and
mass-marketed
policies
Establishes a 70% MLR.
Requires that a company shall, by April 1st of each year,
submit a statement from a qualified actuary certifying the
loss ratio for each policy the company provides.
“Premiums earned” and “losses incurred” shall
be developed by a method consistent with that
method used for developing such items in Schedule
H of the life and accident and health annual
statement blank, unless otherwise specifically
indicated.
“Lifetime anticipated loss ratio” means the ratio of
(i) divided (ii), where (i) is equal to the sum of the
accumulated value of past incurred claims since the inception of the policy and the present value of
future anticipated claims, and (ii) is the sum of the
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 9 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
accumulated value of past earned premiums and the
present value of future anticipated premiums
earnings.
"Disease management expenses" means expenses
incurred by an insurer for services administered to
patients in order to improve their overall health and
to prevent clinical exacerbations and complications
utilizing cost-effective, evidence-based guidelines and patient self-management strategies.
Colorado
Colo. Rev. Stat. §10-
16-102; §10-16-107,
as amended by H.B.
1389 (2008); and 3
Colo. Regs. §702-4
Enacted 1992
Amended 2008
Individual and
group
Uses benefit ratio guidelines when considering rates.
Targeted loss ratios below these guidelines shall be
actuarially justified:
65% for individual;
70% for small group (1 to 50); and
75% for large group.
On or before June 1 of each year, a carrier doing business in
this state shall submit to the commissioner, where
applicable, specified cost information by category.
―Benefits ratio” means the ratio of the value of the
actual benefits, not including dividends, to the
value of the actual premiums, not reduced by
dividends, over the entire period for which rates are
computed to provide coverage.
“Targeted loss ratio” means the ratio of the
expected policy benefits over the entire future
period for which the proposed rates are expected to
provide coverage to the expected earned premium over the same period.
“Administrative ratio” means, for purposes of this
regulation, the ratio of actual total administrative
expenses, not including dividends, to the value of
the actual earned premiums, not reduced by
dividends, over the specified period, which is
typically a calendar year.
Connecticut
Conn. Agencies Regs §38a-478u-5 and
Managed care
organizations (MCOs)
No specific MLR requirement.
On or before May 1st of each year, requires each insurer to
“Medical loss ratio” is defined as the percentage of
the total premium revenues spent on medical care compared to administrative costs and plan
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 10 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Conn. Gen. Stat.
§38a-478c and §38a-
478g
Enacted 1996, 1997,
and 1997
submit, among other things, information necessary for the
commissioner to assess plans, including loss ratios.
marketing.
Connecticut Conn. Gen. Stat.
§38a- 481
Enacted 1990
Individual
No specific MLR requirement.
As an alternative to standard rate filings, a premium rate
shall be deemed approved upon filing if it is accompanied
by a loss ratio guarantee in writing, signed by an officer of
the insurer, and containing specified elements. If the loss
ratio is not met, a rebate or credit is required.
“Medical loss ratio” means the ratio of incurred
claims to earned premiums by the number of years of policy duration for all combined durations.
Connecticut
Conn. Gen. Stat.
§38a-570
Enacted 1990
Amended 20084
Small group –
special health care
plans
Establishes an 80 percent MLR for special health care plans
issued through the Health Reinsurance Association (HRA) to
small employers (defined as employers with 10 or fewer
eligible employees with the majority of the eligible
employees low-income workers).
No definitions.
Delaware
Code Del. Regs. 18
1300, 1305
Enacted 1991
Individual and
small groups of 24
or fewer persons
Follows the NAIC Model.
Requires each individual policy or plan to have its loss ratio
filed with the commissioner‘s office. Requires rate revisions
to be accompanied by expected and actual loss ratios for the
current rate, as well as the expected loss ratios underlying
the proposed change.
No definitions.
4 Connecticut S.B. 310 (2008) amended the requirements for the state‘s small group special health care plans, including the repeal of the 75 percent MLR
imposed under §38a-565 for special health care plans issued by carriers in the small group market.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 11 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Florida
Fla. Stat. chs.
627.410, 62 7.411
and 627.6561
Enacted 1988, 1988,
and 1992
Amended 2003
Individual and
group
Establishes a 65% MLR.
Requires loss ratios to be filed with initial policy filing as
well as renewals.
“Loss ratio” means incurred claims to earned
premium.
“Claims” include scheduled benefit payments or
services provided by a provider or through a
provider network for dental, vision, disability, and
similar health benefits.
Claims do not include state assessments, taxes, company expenses, or any expense incurred by
the company for the cost of adjusting and
settling a claim, including the review,
qualification, oversight, management, or
monitoring of a claim or incentives or
compensation to providers for other than the
provisions of health care services.
Companies can include in claims costs items
that are demonstrated to reduce claims, such as
fraud intervention programs or case
management costs, which are identified in each filing, are demonstrated to reduce claims costs,
and do not result in increasing the experience
period loss ratio by more than 5%.
Georgia
Ga. Code Ann. §33-
29-1 9
Enacted 1992
Amended 1993
Individual
No specific MLR requirement.
Establishes procedures for filing of optional loss ratio
guarantee.
“Loss ratio” means the rate of incurred claims to
earned premiums.
Iowa
Individual
Follows the NAIC Model for policies with annual premiums
No definitions.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 12 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Iowa Admin. Code
§§191-36.9(2) and
191-36.10(514D)
Enacted 1981
Amended 1998
of at least $200.
For policies with annual premiums between $100 and
$200 subtract 5% from allowable MLRs.
For policies with annual premiums less than $100
subtract 10% from allowable MLRs.
Requires that each rate submission include an actuarial
certification of the loss ratio and the method of calculation.
Kansas
Kan. Admin. Regs.
40-4-1
Enacted 1981
Amended 2003
Individual
Follows the NAIC Model for policies with annual premiums
of at least $200.
For policies with annual premiums between $100 and
$200 subtract 5% from allowable MLRs.
For policies with annual premiums less than $100
subtract 10% from allowable MLRs.
Requires that each rate submission include an actuarial
certification of the loss ratio and the method of calculation.
“Loss ratio” means a measure of the relationship
between A&H claims and premiums.
Kentucky Ky. Rev. Stat. Ann.
§304.17A-095 and
806 Ky. Admin. Regs.
17:150
Enacted 1996
Amended 2005 and
2007
Individual and small group health
benefit plans
Establishes the following MLRs:
65% for individual;
70% for small group (2–10); and
75% for small group (11–50).5
Requires that each rate submission include an actuarial
certification of the loss ratio and the method of calculation.
“Loss ratio” means the ratio of the sums of incurred losses and the change in policy reserves
divided by the premiums.
5 New policies without credible experience have to meet no less than a minimum of 60% of the required loss ratios specified in three months, and by six months
must meet the guaranteed minimum loss ratio of the policy (806 Ky. Admin. R. § 8(2)(a).
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 13 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Maine
Me. Rev. Stat. Ann.
Tit. 24-A , §2736-C
Enacted 1993
Amended 2005
Code Me. R. 02-031
Ch. 940
Enacted 2000
Amended 2006
Code Me. R. 02-031
Ch. 945
Enacted 2005
Amended 2009
Individual Establishes a 65% MLR.
Health insurers and HMO are required to submit an annual
report supplement providing details of premiums earned and
costs expended by category.
“Loss ratio” means the ratio of incurred claims to
earned premiums for a given period, as determined
in accordance with accepted actuarial principles and
practices. For the purposes of this calculation,
incurred claims do not include any claim
adjustment expenses or cost containment expenses
except that any savings offset payments must be
treated as incurred claims.
Maine
Me. Rev. Stat. Ann. Tit. 24-A, §2808-B
Enacted 1991
Amended 2008
Code Me. R. 02-031
Ch. 940
Enacted 2000
Amended 2006
Code Me. R. 02-031
Ch. 945
Small group
Establishes a 75% MLR.
Carriers may opt to file for purely informational purposes with a guaranteed loss ratio requirement. In
this situation, a refund to policyholders must be issued
for failure to meet a 78% loss ratio over a 36-month
period. The refund must be distributed in an amount
reasonably calculated to correspond to the aggregate
experience of all policyholders having similar benefits.
Health insurers and HMO are required to submit an annual
report supplement providing details of premiums earned and
costs expended by category.
“Loss ratio” means the ratio of incurred claims to
earned premiums for a given period, as determined in accordance with accepted actuarial principles
and practices. For the purposes of this calculation,
incurred claims do not include any claim
adjustment expenses or cost containment expenses
except that any savings offset payments must be
treated as incurred claims.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 14 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Enacted 2005
Amended 2009
Maryland
Md. Code Ann. Ins.
§15- 605
Enacted 1997
Amended 2005
Individual and
small group
Permits the commissioner to require filing of new rates if
loss ratios are less than:
60% for individual; and
75% for small group.
Requires that new and annual submissions contain the
anticipated and actual loss ratios.
“Loss ratio” means the ratio of incurred claims to
premiums earned.
Massachusetts
Mass. Regs. Code tit.
211, §42.04, §42.06
Enacted 2003
Individual
Follows the NAIC Model.
Requires that each rate submission include an actuarial
certification of the loss ratio and the method of calculation.
“Anticipated loss ratio” means the present value of
the expected future benefits divided by the present
value of expected future premiums, using a
reasonable interest rate and assumptions as to the
distribution of the policy.
Michigan Mich. Admin. Code
r.500.802, 500.803
Enacted 1974
Individual
Establishes the following MLRs:
collectively renewable - 60%;
optionally renewable - 60%;
guaranteed renewable - 55%; and
non-cancelable - 50%.
Requires that each rate submission include an actuarial
certification of the loss ratio and the method of calculation.
“Anticipated loss ratio” means the ratio of the present value of expected future benefits to the
present value of future premiums.
Minnesota
Individual and
Establishes the following MLRs:
No definitions by statute or regulation.
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Minn. Stat. §62A. 021
and §62L. 08
Enacted 1992
Amended 2006
small group 72% for individual; and
82% for small group.
Sets different ratios for companies assessed less than
3% of the total annual amount assessed by the state‘s
high risk pool as follows:
68% for individual;
71% for small groups with less than 10 employees;
and
75% all other small groups.
For companies assessed less than ten percent of the total
annual amount assessed by the Minnesota Comprehensive
Health Association, the loss ratio shall be 60 percent for
both individual and small group health plans.
All filings of rates and rating schedules are required to
demonstrate that actual claims to actual premiums comply
with MLR requirements.
Filings for rate revisions should show that the loss ratio for
the entire time for which the rate is computed meets the
requirements.
A Minnesota Department of Commerce report6
defines loss ratio as the ratio of incurred claims to
earned premiums.
The report defines incurred claims as the paid-
on- incurred claims for the year, plus a reserve
for claims incurred but not yet paid, plus the
change in any other reserves held, plus the
expenses incurred during the year for the following items, where expenses for a
functional area should include allocated costs
such as data processing equipment, office
space, management, overhead, etc.
New Hampshire
New Hamp. Code
Admin. R. § 4102
Adopted 2010
Effective 04/09/2010
Expense based
individual health
insurance policies,
riders, or
endorsement forms,
except long term
care insurance,
For new policies, requires submissions to include
anticipated loss ratio, including a description of how it was
calculated and anticipated durational loss ratio assumptions
when applicable. For rate revisions, requires filings to
include the anticipated future loss ratio and a description of
how it was calculated, along with the anticipated loss ratio
that combines past and future experience, and a description
―Anticipated durational loss ratio” means the ratio
of the expected benefits to the expected premiums
calculated for a specific policy year.
―Anticipated loss ratio” means the ratio of the
present value of the expected benefits to the present
value of the expected premiums calculated over the
6 Minnesota Department of Commerce, Report of 2008 Loss Ratio Experience in the Individual and Small Employer Health Plan Markets for: Insurance
Companies, Nonprofit Health Service Plan Corporations and Health Maintenance Organizations (June 2009).
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Medicare
supplement
insurance, credit
insurance, or
disability income
insurance.
of how it was calculated.
With respect to new forms that are neither low average
premium forms nor high average premium forms, benefits
shall be deemed reasonable provided that the anticipated
loss ratio is at least as great as:
Seventy-five percent for optionally renewable, medical
expense coverage;
Seventy percent for conditionally renewable medical expense coverage;
Sixty-five percent for guaranteed renewable medical
expense coverage;
Sixty-five percent for non-cancelable medical expense
coverage;
With respect to low average premium forms, benefits shall
be deemed reasonable if the anticipated loss ratio is at least
as great as the appropriate loss ratio above multipled by the
ratio of (1) the sum of I times 500 plus the expected
average annual premum for the policy form over I times 750; and (2) an anticipated loss ratio of not less than fifty
percent.
With respect to high average premium forms, benefits shall
be deemed reasonable provided that the anticipated loss
ratio is at least as great as either the appropriate loss ratio
from above plus five percentage points or the appropriate
loss ratio from above multiplied by the ratio of (1) the sum
of I times 4000 and the expected average annual premium
for the policy form over I times 5500, and (2) an anticipated
loss ratio of not more than eighty-five percent.
For rate revisions, if the policy forms constitute an open
black that is still being actively marketed, benefits shall be
deemed reasonable provided the revised rates meet the
lesser of 20 years or the lifetime of the policy.
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following standards derived from the previously approved
rate filing for the form or forms:
The anticipated loss ratio over the entire future period
for which the revised rates are computed to provide
coverage shall be at least as great as the anticipated loss
ratio calculated over the entire future period using the
durational loss ratios from the previously approved rate
filing; and
The anticipated loss ratio shall be at least as great as the anticipated loss ratio from the previously approved
filing where the anticipated loss ratio shall be computed
by dividing (a) the sum of the accumulated benefits
from the original effective date of the form to the
effective date of the revision, and the present value of
future benefits, and (b) the sum of the accumulated
premiums from the original effective date of the form
to the effective date of the revision, and the present
value of future premiums.
New Hampshire New Hamp. Code
Admin. R. § 4103
Adopted 2010
Effective 04/09/2010
Small employer group health
insurance (1 to 50)
With respect to forms that are neither low average premium forms nor high average premium forms, benefits shall be
deemed reasonable in relation to the proposed premiums
provided the anticipated loss ratio is at least as great as
eighty percent.
With respect to low average premium forms, benefits shall
be deemed reasonable in relation to the premiums provided
the anticipated loss ratio is at least as great as the
appropriate loss ratio from above multiplied by the ratio of
(1) the sum of I times 500 plus the expected average annual
premium for the policy form over I times 750, and (2) an
anticipated loss ratio of not less than fifty percent.
With respect to high average premium forms, benefits shall
―Anticipated durational loss ratio” means the ratio of the expected benefits to the expected premiums
calculated for a specific policy year.
―Anticipated loss ratio” means the ratio of the
present value of the expected benefits to the present
value of the expected premiums calculated over the
lesser of 20 years or the lifetime of the policy.
―Carrier” means any entity that provides health
insurance in this state, including insurance
companies, health service corporations, health
maintenance organizations, fraternal benefit societies, and other benefits subject to state
insurance regulation.
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be deemed reasonable in relation to the premiums provided
the anticipated loss ratio is at least as great as either the
appropriate loss ratio plus five percentage points or the
appropriate loss ratio multiplied by the ratio of (1) the sum
of I times 4000 and the expected average annual premium
for the policy form over I times 5500, and (2) an anticipated
loss ratio of not more than 85 percent.
Rate increases based on experience or trend shall be offset to the extent that loss ratios in previous years have fallen short
of the minimum loss ratio.
―Small employer” means any person, firm,
corporation, partnership or group of affiliated
companies eligible to file a combined tax return
and that is actively engaged in business that, on at
least fifty percent of the working days during the
preceding calendar year, employed at least one
employee and no more than fifty employees, the
majority of whom are employed within this state.
New Hampshire
New Hamp. Code
Admin. R. § 4104
Adopted 2010
Effective 04/09/2010
Large employer
group health
insurance
Requires supporting documentation for rate filings to
included paid loss ratio for each previous calendar year.
For new policy forms that are neither low average premium
forms nor high average premium forms, benefits shall be
deemed reasonable provided the anticipated loss ratio is at
least as great as eighty percent.
With respect to low average premium forms, benefits shall be deemed reasonable provided the anticipated loss ratio is
at least as great as the appropriate loss ration multiplied by
the ratio of (1) the sum of I times 500 plus the expected
average annual premium for the policy form over I times
750, and (2) an anticipated loss ratio not less than fifty
percent.
With respect to high average premium forms, benefits shall
be deemed reasonable in relation to premiums provided that
the anticipated loss ratio is at least as great as either the
appropriate loss ratio plus five percentage points or the appropriate loss ratio multiplied by the ratio of (1) the sum
of I times 4000 and the expected average annual premium
―Anticipated durational loss ratio” means the ratio
of the expected benefits to the expected premiums
calculated for a specific policy year.
―Anticipated loss ratio” means the ratio of the
present value of the expected benefits to the present
value of the expected premiums calculated over the
lesser of 20 years or the lifetime of the policy.
―Large employer” means any person, firm,
corporation, or partnership that is actively engaged
in business that, on at least fifty percent of working
days during the prceding calendar year, employs at
least 51 employees who are eligible for employer
sponsored coverage, and the majority of whom are
employed within this state.
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for the policy form over I times 5000, and (2) an anticipated
loss ratio of not more than 85 percent.
New Jersey
N.J. Stat. Ann.
§17B:27A-25 and
§17B:27A-9
Enacted 1992 Amended 2008
N.J. Admin. Code
11:20-7.4 and 11:21-
7A.2
Individual and
small group
(standard and non-
standard policies)
Establishes an 80% MLR.
A dividend or credit towards future premiums for all
policyholders must be issued for failure to comply.
Requires carriers to annually report by August 1st of each
year, the calculated loss ratio for the previous year.
No definitions.
New Mexico
TBD (HB 2010-
0012)
Enacted 2010
Effective TBD
(ninety days after
adjournment)
Health insurance
For group health insurance:
Requires insurers to make reimbursement for direct
services at a level not less than eighty-five percent of premiums across all health product lines.
For individually underwritten health care policies, plans or
contracts:
Directs the superintendent to establish the level of
reimbursement for direct services as a percent of
premiums.
In setting the level, requires the superintendent to
consider costs associtated with individual marketing
and medical underwriting of policies at a level not less
than seventy-five percent of premiums.
Insurers failing to comply with the reimbursement
―Direct services‖ means services rendered to an
individual by a health insurer or a health care
practitioner, facility or other provider, including
case management, disease management, health education and promotion, preventive services,
quality incentive payments to providers and any
portion of assessment that covers services rather
than administration and for which an insurer does
not receive a tax credit pursuant to the Medical
Insurance Pool Act or the Health Insurance
Alliance Act. provided, however, that ‗direct
services‘ does not include care coordination,
utilization review or management, or any other
activity designed to manage utilization or services.
―Health insurer” means a person duly authorized to
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requirements shall issue a dividend or credit against future
premiums in an amount sufficient to assure that the benefits
paid during the preceding three calendar years plus the
amount of dividends or credits are equal to the required
direct services reimbursement.
transact the business of health insurance but does
not include a person that only issues a limited-
benefit policy intended to supplement major
medical coverage, including Medicare supplement,
vision, dental, disease-specific, accident-only or
hospital indemnity-only insurance policies, or that
only issues policies for long-term care or disability
income.
―Premium” means all income received from
individuals and private and public payers or sources
for the procurement of health coverage, including
capitated payments, self-funded administrative fees,
self-funded claim reimbursements, recoveries from
third parties or other insurers and interests less any
premium tax paid and fees assicated with
participating in a health insurance exchange that
serves as a clearinghouse for insurance.
New Mexico
TBD (HB 2010-0012)
Enacted 03/09/2010
Effective TBD
(ninety days after
adjournment)
Small group
Directs insurers to make reimbursement for direct services
at a level not less than eighty-five percent of premiums across all health product lines over the preceding three
calendar years as determined by reports filed with the
insurance division.
Insurers failing to comply with the eighty-five percent
reimbursement requirement shall issuea dividend or credit
against future premiums to all policyholders in an amount
sufficient to assure that the benefits paid in the preceding
three calendar years plus the amount of dividends or credits
equal eighty-five percent of premiums collected in the
preceding three calendar years.
―Direct services‖ means services rendered to an
individual by a health insurer or a health care practitioner, facility or other provider, including
case management, disease management, health
education and promotion, preventive services,
quality incentive payments to providers and any
portion of assessment that covers services rather
than administration and for which an insurer does
not receive a tax credit pursuant to the Medical
Insurance Pool Act or the Health Insurance
Alliance Act. Provided, however, that ‗direct
services‘ does not include care coordination,
utilization review or management or any other activity designed to manage utilization or services.
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―Health insurer” means a person duly authorized to
transact the business of health insurance but does
not include a person that only issues a limited-
benefit policy intended to supplement major
medical coverage, including Medicare supplement,
vision, dental, disease-specific, accident-only or
hospital indemnity-only insurance policies, or that
only issues policies for long-term care or disability
income.
―Premium‖ means all income received from
individuals and private and public payers or sources
for the procurement of health coverage, including
capitated payments, self-funded administrative fees,
self-funded claim reimbursements, recoveries from
third parties or other insurers and interests less any
premium tax paid and fees associated with
participating in a health insurance exchange that
serves as a clearinghouse for insurance.
“Small employer” means any person, firm, corporation, partnership or association actively
engaged in business who, on at least fifty percent of
its working days during either of the two preceding
years, employed no less than two and no more than
fifty eligible employees, provided that (1) in
determining the number of eligible employees, the
spouse or dependent of an employee may, at the
employer‘s discretion, be counted as a separate
employee, (2) companies that are affiliated or that
are eligible to file a combined tax return shall be
considered one employer, and (3) in the case of an employer that was not in existence throughout a
preceding calendar year, the determination of
whether the employer is a small or large employer
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shall be based on the average number of employees
that it is reasonably expected to employ on working
days in the current calendar year (N.M. Stat. §59A-
23C-3).
New Mexico
TBD (HB 2010-
0012)
Enacted 03/09/2010
Effective TBD
(ninety days after
adjournment)
Health maintenance
organizations and
nonprofit health
care plans
An HMO or health care plan shall make reimbursement for
direct services at a level not less than eighty-five percent of
premiums across all health product lines, except individually
underwritten. Reimbursement shall be made for direct services provided over the preceding three calendar years,
but not earlier than calendar year 2010.
For individuall underwritten health care policies, plans or
contracts, the superintendent shall establish the level for
direct services as a percent of premiums. In establishing the
level, the superintendent shall consider the costs associated
with the individual marketing, and medical underwriting, of
these policies, plans or contracts at a level not less than
seventy-five percent of premiums.
An HMO or health care plan that fails to comply with the reimbursement requirements shall issue a credit or dividend
against future premiums to all policy or contract holders in
an amount sufficient to assure that the benefits paid in the
preceding three calendar years plus the amount of the
dividends or credits are equal to the require direct services
reimbursement level.
―Direct Services” means services rendered to an
individual by an HMO or a health care practitioner,
facility or other provider, including case
management, disease management, health education and promotion, preventive services,
quality incentive payments to providers and any
portion of an assessment that covers services rather
than administration and for which an insurer does
receive a tax credit pursuant to the Medical
Insurance Pool Act or the Health Insurance
Alliance Act; provided, however, that ‗direct
services‘ does not include care coordination,
utilization review or management, or any other
activity designed to manage utilization or services.
―Health maintenance organization” means any person who undertakes to provide or arrange for the
delivery of basic health care services to enrollees on
a prepaid basis, except for enrollee responsibility
for copayments or deductibles, but does not include
a person that only issues a limited-benefit policy or
contact intended to supplement major medical
coverage, including Medicare supplement, vision,
dental, disease-specific, accident-only or hospital-
indemnity only insurance policies, or that only
issues policies for long-term care or disability
income.
―Health care plan” means a nonprofit corporation
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authorized by the superintendent to provide or
arrange for the delivery of basic health care services
to enrollees on a prepaid basis, except for enrollee
responsibility for copayments or deductibles, but
does not include a person that only issues a limited-
benefit policy or contact intended to supplement
major medical coverage, including Medicare
supplement, vision, dental, disease-specific,
accident-only or hospital-indemnity only insurance policies, or that only issues policies for long-term
care or disability income.
―Premium” means all income received from
individuals and private and public payers or sources
for the procurement of health coverage, including
capitated payments, self-funded administrative fees,
self-funded claim reimbursements, recoveries from
third parties or other insurers and interest less any
premium tax paid and fees associated with
participating in a health insurance exchange that
serves as a clearinghouse for insurance.
New York
N.Y. Ins. Law §3231
Enacted 1992
Amended 2006
Individual and
small group
Establishes a 75% MLR.
Requires a dividend or credit towards future premiums for
all policyholders to be issued for failure to comply. The
credit is required to be prorated based on the direct premium
earned for the year among all policy holders eligible to
receive a dividend or credit. For former policyholders,
carriers are required to make a reasonable effort to identify
the location of the policyholder and issue the dividend or
credit. If the former policyholder cannot be located, the
carrier has the option of prospectively adjusting premium rates by the amount of the dividends or credits, issuing the
amount to existing policyholders, depositing the amount in
No definitions.
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the fund for standardized individual enrollee direct payment
contracts, or utilizing any other method which offsets the
amount of the dividends or credits.
Requires carriers to annually report the calculated loss ratio
for the previous year.
New York
N.Y. Ins. Law §4308
Enacted 1995
Amended 2009
Non-profit medical
and dental indemnity, or health
and hospital service
corporations (2 to
50)
Requires corporations to return in the form of aggregate
benefits incurred for each contract the following amounts:
80% for individual direct payment contracts; or
75% for small group
Requires carriers failing to comply with the minimum loss
ratio to issue a dividend or credit against future premiums
sufficient to ensure that the aggregate benefits in the
previous year plus the amount of dividends or credits equals
the required loss ratio. The credit is required to be prorated
based on the direct premium earned for the year among all
policy holders eligible to receive a dividend or credit. For
former policyholders, carriers are required to make a reasonable effort to identify the location of the policyholder
and issue the dividend or credit. If the former policyholder
cannot be located, the carrier has the option of prospectively
adjusting premium rates by the amount of the dividends or
credits, issuing the amount to existing policyholders,
depositing the amount in the fund for standardized
individual enrollee direct payment contracts, or utilizing any
other method which offsets the amount of the dividends or
credits.
No definitions.
North Carolina
N.C. Admin. Code r. 11.16.0201 and
Individual
Follows the NAIC Model.
A premium refund, premium decrease or other actuarial
“Loss ratio” means the percentage of premium that
is expected to be used to pay losses. It is calculated by subtracting the expense loss ratio from the
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11.16.0401
Enacted 1992 and
1994
Amended 2006 and
1994
action must be taken for failure to comply. number one.
“Expense loss ratio” means the ratio of the
insurer's operating expenses for a class of business
and plan of insurance to its earned premium for that
class of business and plan of insurance.
“Operating expenses” include:
commissions;
other acquisitions;
general administration;
taxes, licenses, and fees; and
profit and contingency margin.
North Carolina
N.C. Admin. Code r.
11.16.0607
Enacted 1995
HMOs
Establishes MLRs as follows:
75% for full-service products issued on a group basis;
65% for single-service products issued on a group
basis;
65% for full-service products issued on an individual
basis; and
55% for single-service products issued on an individual
basis.
No definitions.
North Dakota
N.D. Cent. Code
§26.1- 36-3 7.2
Enacted 1993
Amended 2007
Individual and
group
Establishes MLRs of no less than:
55% for individual policies; and
70% for group policies.
“Loss ratio” means incurred claims divided by
earned premiums.
Ohio
Individual and
Prohibits administrative expenses in excess of 20% of
“Administrative expense” means the amount
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Ohio Rev. Code
Ann.§3923.022 and
§3923.333
Enacted 1992 and
1997
group premium received. resulting from the following:
the amount of premiums received minus the
sum of the amount of claims for losses paid;
the amount of losses incurred but not reported;
the amount paid for state fees, federal and state
taxes, and reinsurance; and
the costs and expenses related, either directly
or indirectly, to the payment of commissions,
measures to control fraud, and managed care.
“Administrative expenses” does not include any
amounts collected, or administrative expenses
incurred, by an insurer for the administration of an
employee health benefit plan subject to regulation
by ERISA.
Ohio
Ohio Rev. Code
Ann.§3941.14
Enacted 1953
Mutual insurance
companies
Subsequent to the first calendar year after organization,
prohibits the expense of management of any domestic
mutual company from exceeding in any one calendar year
40% of its premium income in such year.
No definitions.
Oklahoma
Okla. Stat. tit 36,
§6515
Enacted 1992
Amended 1998
Small group (1 to
50)
Establishes a 60% MLR.
No definitions.
Oregon
Or. Admin. R. 836-
053- 1400
Individual and
small group
No specific MLR requirement.
Requires an annual submission stating the MLR for that year.
“Medical loss ratio” means the total cost of
medical claims divided by the total premiums
earned.
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Enacted 2006
Amended 2007
“Total amount of costs for claims” means incurred
claims as reported by the carrier on the exhibit of
premiums, enrollment and utilization in its annual
statement. If the annual statement blank used by a
carrier does not include an exhibit of premiums,
enrollment and utilization, the carrier shall derive
the answer from its records, using the instructions
for the exhibit of premiums, enrollment and
utilization for reporting the information.
“Total amount of premiums” means earned
premium as reported by the carrier on the exhibit of
premiums, enrollment and utilization in its annual
statement. If the annual statement blank used by a
carrier does not include an exhibit of premiums,
enrollment and utilization, the carrier shall derive
the answer from its records, using the instructions
for the exhibit of premiums, enrollment and
utilization for reporting the information.
Pennsylvania 31 Pa. Admin. Code
§89.83
Enacted 1975
Individual
With regard to rates for policies which are initially filed for approval, finds unacceptable anticipated loss
ratios which are lower than the following:
industrial policies7 - 45%; and
all other policies - 50%.
With regard to rate revision, requires the use of the
following minimum loss ratios:
industrial policies - 50%; and
all other policies - 60%.
No definitions.
7 Industrial policies are low cost and low value policies that were sold and delivered, with premium collected (usually weekly or monthly) by the agent. These
types of policies do not currently exist in the marketplace.
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Requires both new filings and rate revisions to include
actuarial certification of loss ratio.
South Carolina
S.C. Code Ann. §38-
71-310(E)
Enacted 1976
Amended 2001
Individual
Follows the NAIC Model.
A premium refund of $5.00 or more must be issued to
all South Carolina policyholders for failure to comply
with guaranteed loss ratio (if applicable).
Loss ratio guarantee requires filing of anticipated loss ratio. The guaranteed loss ratio must be equivalent to, or greater
than, the most recent loss ratios detailed in the NAIC
―Guidelines for Filing of Rates for Individual Health
Insurance Forms‖.
Also requires that the company conduct and independent
audit at their own expense to verify the loss ratio for the
year in question.
“Loss ratio” means the ratio of incurred losses to
earned premium by number of years of policy
duration, for all combined durations.
South Dakota
S.D. Codified Laws §58- 17-64 and S.D.
Admin. R.
20:06:22:02
Enacted 1994 and
1990
Amended 1997
Individual
Creates a statutory loss ratio requirement of 65%, while
allowing the Director of the Division of Insurance to promulgate rules that modify the requirement based on the
specific design of the product.
Modifies statutory loss ratio by regulation as follows:
For policies with annual premiums of $250 or
greater:
o optionally renewable - 70%;
o conditionally renewable - 65%;
o guaranteed renewable - 65%; and
o non-cancellable - 60%.
For policies with annual premiums between $150 and
$250 subtract 5% from allowable MLRs.
For policies with annual premiums less than $150
No definitions.
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subtract 10% from allowable MLRs.
South Dakota
S.D. Admin. R.
20:06:22:02
Enacted 1990
Amended 1997
Short-term medical
Establishes a 60% MLR.
No definitions.
South Dakota
S.D. Codified Laws
§58-18-63, §58-38-3
6, and §58- 40-33
Enacted 1994
Group
Establishes a 75% MLR.
No definitions.
Tennessee
Tenn. Code Ann.
§56-2 7-114
Enacted 1945
Medical service
corporations
Limits acquisition and administrative expenses to 25% of
total net premium income.
“Administrative expenses” include all expenditures
except payments for subscribers‘ claims.
Requires claim service expense to be included
in administrative expense.
Tennessee
Tenn. Comp. R. &
Regs. tit. 0780, ch. 1-
20- 06(1)
Enacted 1974
Amended 1980
Individual
Follows the NAIC Model for policies with annual premiums
of at least $200.
For policies with annual premiums between $100 and
$200 subtract 5% from allowable MLRs.
For policies with annual premiums less than $100
subtract 10% from allowable MLRs.
Requires each rate submission and request for rate revision
to include an actuarial certification of the loss ratio.
No definitions.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 30 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Utah
Utah Admin. Code
R590- 85-5(1)(a) and
R590-85-4
Enacted 2003
Amended 2007
Individual and
group
Follows the NAIC Model for policies with annual premiums
of at least $200.
For policies with annual premiums between $100 and
$200 subtract 5% from allowable MLRs.
For policies with annual premiums less than $100
subtract 10% from allowable MLRs.
Requires all rate filings for new policies to include the anticipated loss ratio and all requests for rate revisions shall
include the incurred loss ratio, cumulative loss ratio, and
anticipated loss ratio for the revised rate.
No definitions.
Vermont
Vt. Stat. Ann. tit. 8,
§4080b
Enacted 1991
Amended 2005
Individual
Establishes a 70% MLR.
“Anticipated loss ratio” means a comparison of
earned premiums to losses incurred plus a factor for
industry trend where the methodology for
calculating trend shall be determined by the
commissioner by rule.
Virginia
14 Va. Admin. Code
§5-130-40 and §5-
130-60
Enacted 1981
Individual
Follows the NAIC Model for policies with annual premiums
of at least $200 but less than $1000.
For policies with annual premiums between $100 and
$200 subtract 5% from allowable MLRs.
For policies with annual premiums less than $100
subtract 10% from allowable MLRs.
For policies with annual premiums of $1000 or more add
5% to the allowable MLRs.
Rate submissions shall include the anticipated loss ratio and
a description of the method by which it was calculated.
“Anticipated loss ratio” is the present value of
future benefits to the present value of the future
premiums of a policy over the entire period for
which rates are computed to find coverage.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
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State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
Washington
Wash. Rev. Code
§48.20.025;
§48.44.017; and
§48.46.062
Enacted 2003, 2001,
and 2001 Amended 2008
Individual health
benefit plans, health
care service
contractors, and
HMOs
Requires insurers to file supporting documentation of its
rate-making methodology, including, actuarial certification
that the rate charged can be reasonably expected to result in
a loss ratio of 74%, minus the premium tax rate applicable
to the insurer's individual health benefit plans.
If the actual loss ratio for the preceding calendar year is less
than the applicable loss ratio amount listed below, insurers are required to provide remittance to the Washington State
High Risk Pool. For this purpose, the loss ratios are as
follows:
74% MLR when the declination rate is under 6%;
75% MLR when the declination rate is more than
6% but less than 7%;
76% MLR when the declination rate is 7% or more
but less than 8%; and
77% MLR when the declination rate is 8% or more
"Declination rate" for an insurer means the
percentage of the total number of applicants for
individual health benefit plans in the aggregate in
the applicable year which are not accepted for
enrollment based on the results of the standard
health questionnaire administered pursuant to state
law.
"Loss ratio" means incurred claims expense as a
percentage of earned premiums.
Washington Wash. Admin. Code §
284-60-050
Enacted 1983
Individual disability (health)
8
Benefits shall be deemed reasonable in relation to premiums if the overall loss ratio is at least sixty percent over a
calculating period chosen by the insurer and satisfactory to
the commissioner.
No definitions.
Washington Wash. Admin. Code
§§284-43-910, §284-
Individual, small
group, and group
No specific MLR requirement.
Requires rate submissions required to include statement of
“Anticipated loss ratio” means the projected
incurred claims divided by the project earned
premium.
8 Note that Washington statutory law defines disability insurance broadly to include insurance against bodily injury, disablement, or death by accident, against
disablement resulting from sickness, and every insurance related insurance, including stop loss insurance (Wash. Rev. Code § 48.11.030). Separate loss ratio
requirements exist for ‗health benefit plans‘, which are defined more restrictively to exclude supplemental products.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 32 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
43-945 and §284-43-
950
Enacted 1998
Amended 2005
anticipated or experienced loss ratio.
“Loss ratio” means incurred claims as a division of
earned premiums before any deductions.
Washington
Wash. Admin. Code §
284-60-060
Enacted 1983
Group disability
(health)
Group disability (health) insurance, other than specified
disease, as to which the insureds pay all or substantially all
of the premium shall generate loss ratios no lower that the following (based on the number of certificate holders at
issue, renewal or rating):
Nine or less—60%;
Ten to twenty-four—65%;
Twenty-five to forty-nine—70%
Fifty to ninety-nine—75%
One-hundred or more—80%.
No definitions.
West Virginia
W. Va. Code, §33-
6C-1, §33-6C-2; §33-6C-5; §33-15-1a;
§33-24-4; §33-25-6;
§33-25A-24; §33-
25D-26; and W. Va.
Code St. R. §114-31-
3.1
Enacted 1991, 1991,
1991, 1993,1957,
1964, 1977, 1999 and
1992 Amended 1993,
1993, 1991, 1995,
Individual
Establishes a 60% MLR. To be eligible to make a premium
rate increase request, any insurer offering or which has in
force accident and sickness insurance policies shall have a minimum anticipated loss ratio of sixty-five percent.
Initial filing of loss ratio guarantee shall include target
lifetime loss ratio and a statement of expected loss ratio.
Filings for rate revision shall include cumulative loss ratio
and expected lifetime loss ratio.
Failure to meet loss ratio requirements results in a refund to
be calculated by multiplying the anticipated loss ratio by the
applicable premium during the experience period and subtracting from that result the actual incurred claims during
the experience period.
“Loss ratio” means the ratio of incurred claims to
earned premium.
State Mandatory Medical Loss Ratio (MLR) Requirements for Comprehensive, Major Medical Coverage:
Summary of State Laws and Regulations
©America‘s Health Insurance Plans 33 May 2010
State
Applicability
MLR Guidelines & Reporting Requirements
Relevant Definitions
2006, 2003, 2005,
and 2003
West Virginia
W. Va. Code §33-
16D-5 and §33-16D-
16
Enacted 1991 and 2004
Amended 1997 and
2004
Small group
Establishes MLRs as follows:
77% for uninsured health benefit plans9; and
73% for all other small group plans
No definitions.
9 Section 33-16D-16 establishes requirements for a voluntary program under which health insurance carriers in the small group market provide coverage to small
employers who have not had health insurance coverage for the previous 12 months. Among other things, this program requires employers to contribute 50
percent of the employee‘s premium and exempts the coverage from state premium tax obligations.