The U.S. Department of Health and Human Services (HHS), through its Centers for Medicare & Medicaid Services (CMS), issued a final rule and an interim final rule, along with a related fact sheet, revising medical loss ratio (MLR) requirements for health insurance issuers under the Patient Protection and Affordable Care Act (PPACA).
Both new rules, effective on Jan. 1, 2012, were published in the Dec. 7, 2011, Federal Register.
[Update: A subsequent final rule on computation of the medical loss ratio was published in the Federal Register on Jan. 7, 2014.]
The rules are intended to ensure that health insurance companies spend at least 80 percent of consumers’ health insurance premiums on medical care, not overhead and marketing. Insurance companies that fail to meet the new standard are required to provide a rebate to consumers, including employees covered by group health plans.
Self-insured health plans are not health insurance issuers as defined by the Public Health Service Act, and thus self-insured employers are not subject to the MLR regulations.
The MLR requirements under the PPACA took effect on Jan. 1, 2011, but the new final rule makes modifications to and provides certainty to how the MLR is calculated. These modifications are based on public comments solicited in an earlier version of the rule published by CMS in the spring of 2011. The new interim final rule establishes regulations governing the distribution of rebates by issuers in group markets.
The modifications made in the new final rule are intended to:
• Make the MLR rebate tax free. Rather than having insurers send checks that could be taxed, employees in group health plans can receive rebates in a way that is not taxable.
• Increase transparency. Consistent with comments from consumer groups, the new regulation proposes that all consumers receive a notice, showing not just the amount of any rebate but what the insurer’s MLR means regardless of whether there is a rebate. In addition, data on the special types of plans, mini-meds and ex-patriate plans, will be publicly posted in the spring of 2012.
• Phase down the special circumstances adjustment for mini-med plans. In 2011, so-called mini-med plans received a special circumstances adjustment to their MLR in the form of a multiplier of 2.0 for 2011. The final rule phases it down from 1.75 in 2012 to 1.5 in 2013 and to 1.25 in 2014. Mini-med plans will be banned by the prohibition on annual limits in the PPACA starting in 2014.
• Recognize circumstances of special types of plans. The final rule, after reviewing data, keeps the ex-patriate plan multiplier adjustment at 2.0 due to their unique structure. It also levels the playing field between nonprofit and for-profit insurers in states with premium taxes.
In conjunction with the MLR rules, the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA), on Dec 2, 2011, issued Technical Release No. 2011-04, which provides guidance on rebates for group health plans paid pursuant to the MLR requirements.
Broker Fees Remain an Administrative Cost
According to an analysis of the new regulations on the website of the journal Health Affairs, "Perhaps the biggest news about the new HHS regulations concerns what they did not do. HHS did not reclassify agent and broker compensation, instead leaving them as an administrative cost. HHS has long maintained that there is no other way to classify these expenses under the current law, and the new regulations do not even discuss the issue."
Brokers had lobbied to have their fees included on the medical care side and not counted as administrative costs, which include such expenses as marketing and executive salaries. But HHS determined that commissions are clearly administrative costs and removing them would make it easier for insurers to avoid paying the required rebates.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
How to Handle Medical Loss Ratio Rebates: Guidance for Insured Plans Subject to ERISA, Segal's Capital Checkup, January 2012
Implementing Health Reform: Fine-Tuning the Medical Loss Ratio Rules, Health Affairs, December 2011
Medical Loss Ratio: No Rebate Check Just Yet, SHRM Online Benefits Discipline, February 2011
HHS Issues Medical Loss Ratio Interim Final Rule, SHRM Online Benefits Discipline, December 2010
Medical Loss Ratio Rules Could Boost Self-Insuring, SHRM Online Benefits Discipline, December 2010
SHRM Online Benefits DisciplineSHRM Online Health Care Reform Resource Page