State regulators finalizing medical loss ratio regulation

The National Association of Insurance Commissioners said Monday that it's close to resolving dozens of issues regarding the medical loss ratio and expects to start drafting regulations in the coming weeks. The health reform law tasks state regulators with defining the ratio, and the NAIC has said it plans to submit regulatory language for certification by the Department of Health and Human Services by the end of summer.

"I would anticipate that this group will be exposing a draft regulation in the coming weeks and there will be an opportunity to comment," Steve Ostlund, chairman of the health reform subgroup of the NAIC's Accident and Health Working Group, said on a conference call. "Timeframe, we're still looking for the end of summer."

The healthcare reform law requires health plans to spend at least 80 percent of premiums on care (85 percent in the large group market) or reimburse customers for the difference. The rebates will start to go out in 2012.

One of the issues resolved at the subgroup level concerns how to count reinsured business. A preliminary resolution would require the medical loss ratio to be calculated on a direct basis before consideration of private reinsurance purchased from other insurance companies. The NAIC worried that allowing private reinsurance in the rebate calculation could lead health plans to abuse the risk-management tool in order to reduce or avoid rebate payments.

"We were very concerned about the possibility of gaming," said Julia Philips, an actuary with NAIC and the Minnesota Department of Commerce.

The resolution has an exception stating that for a block of business that was subject to an assumption reinsurance transaction, prior to the effective date of the new law, that transferred 100 percent of the block to a second company, the second company should report the assumed premiums and claims as part of its MLR and rebate calculations.

CORRECTION: This article was modified at 11:58 a.m. Tuesday to clarify that the NAIC expects to issue a draft of the regulation in the coming weeks, not week.