New interim medical loss ratio (MLR) rules ordering insurers to spend at least 80 percent of premiums paying for health services could drive employers away from fully insured arrangements and persuade them to sponsor self-funded plans, experts suggest.
The Interim rules, issued by the U.S. Department of Health and Human Services (HHS) and published in the Dec. 1, 2010 Federal Register, require health insurers to spend 80 to 85 percent of their premium dollars on medical care and health care quality improvement. The rules do not apply to self-insured employers. The rules—authorized under the 2010 Patient Protection and Affordable Care Act—were effective Jan. 1, 2011.
The interim rules require health insurers of group or individual health insurance coverage to adhere to the 85 percent MLR for their large group market and 80 percent for their small and individual markets. If they don’t meet these levels then they must give rebates to their customers.
“Larger employers must have 15 percent maximum retention, and they can exclude things like case management, care coordination, chronic disease management, wellness programs and health information technology support,” said Paul Lambert, a partner with 360 Corporate Benefit Advisors in Fairfield, Conn. The retention rate includes the money the insurer keeps to run the health plan.
“I think you’ll find some consultants who work off commissions suggesting self-funding on a more frequent basis now,” Lambert observed.
Greater Transparency Could Bring Lower Fees
The requirements mean employer groups will seek greater transparency regarding where their premium dollars are going than before, according to Joe Torella, president for employee benefits for Hub International Northeast in New York City. Health care brokers will be impacted by the MLR rule because it will lead to more insurers moving to a fee basis for payment, Lambert added. “That will make it very transparent, and every month they’ll see what they’re paying the broker”—which is likely to lead to lower fees from brokers, he explained.
In addition, employers will want to know if their group is benefiting from the MLR requirements or if they are subsidizing other employers.
“If my company’s claims are running well, am I subsidizing other groups whose claims are not running as well?” Torella said. “Exactly what is the cost of claims, how much am I spending administratively, where are those dollars going, and how do I compare to other groups? Insurers will be challenged to provide this data, and it will make self-insured models more appealing to employers.”
Larger employers subject to the MLR rules will expect their costs to mirror closely what the insurer’s experience is. So if the insurer has 15 percent in administrative expenses, then the larger employer will expect to see that 85 to 15 ratio, Torella noted.
“For smaller employers, if an insurer tries to charge more than 15 percent, the employer might ask, ‘Why are you charging me more than that?’” he added.
Allowable Medical Spending
Under the rules, the following expenses do not count as medical spending:
• Money paid to third-party vendors, including consultants.
• Administrative services expenses that do represent reimbursement for covered services provided to an enrollee.
• Salaries and benefits of insurer staff and sales personnel.
• General administrative expenses.
• Loss adjustment and cost containment expenses.
• Community benefits expenditures.
HHS is seeking comments and input on the interim rule until Jan. 31, 2011.
Contributed by Thompson Publishing Group Inc. Republished with permission. © 2010 Thompson Publishing Group. All Rights Reserved. For more analysis, see Thompson's Employer’s Guide to Self-Insuring Health Benefits.
HHS Issues Final and Interim Rules on Medical Loss Ratio Requirement, SHRM Online Benefits Discipline, December 2011
HHS Issues Medical Loss Ratio Interim Final Rule, SHRM Online Benefits Discipline, December 2010
Navigating Health Reform's Ambiguities and Unclear Mandates, SHRM Online Benefits Discipline, December 2010
SHRM Online Benefits DisciplineSHRM Online Health Care Reform web page