Lawmakers provide needed clarification on medical loss ratio

That leaves only three federal taxes, according to the letter:

• the annual fees based on insurers' market share;

• the annual fee on each policy, based on the average number of people covered under the policy;

• and the tax on high-cost employer-sponsored coverage.

"Federal income taxes or payroll taxes were not intended to be excluded," the letter said.

Under the healthcare reform law, individual market and small-group plans must spend at least 80 percent of premiums (85 percent for large-group plans) on healthcare or give customers rebates. The medical loss ratio provision applies to plan years starting in 2011 but rebates wouldn't go out until 2012.

Mike Tuffin, executive vice president of America's Health Insurance Plans, said the industry group didn't know what the effect would be because the plans had assumed the healthcare reform language was "crystal clear" in excluding "federal and state taxes and licensing or regulatory fees."

"This caught people off guard," Tuffin told The Hill. "I'm not sure people saw a need to analyze alternative scenarios. But we're on it [now]."

A health policy source with knowledge of the discussions that prompted the letter said the health plans must have been engaging in "wishful thinking." The source said lawmakers were pressed for time to make their legislative intent clear, because state insurance commissioners are currently in the process of defining how the medical loss ratio should be calculated.

In fact, the commissioners have been pressing for clarification on the issue for some time.

"We're not sure what the definition of federal taxes is," Brian Webb, manager of health policy and legislation for the National Association of Insurance Commissioners (NAIC), told reporters earlier this month. "We're still waiting for HHS on that."

"The law says that in the denominator it is all of your premiums minus federal and state taxes," Webb added. "Some would define that as federal premium taxes, which are in the bill, some would say since it says federal taxes, that's all federal taxes. We can't determine that — that's not up to us. [Federal regulators] have to tell us what they think the law means."

Webb added that different NAIC subgroups disagreed on the meaning of the law, with the people putting together the forms insurers must fill out arguing for a limited interpretation while actuaries thought the law referred to all federal taxes.

"HHS has to tell us," Webb said. "The only other option is we send it to them with what we think it is and then they can change it."

Sen. Al FrankenAl FrankenWhat killing net neutrality means for the internet Overnight Tech: Net neutrality fight descends into trench warfare | Zuckerberg visits Ford factory | Verizon shines light on cyber espionage Franken, top Dems blast FCC over net neutrality proposal MORE (D-Minn.), who championed the medical loss ratio alongside Sen. Jay RockefellerJay RockefellerObama to preserve torture report in presidential papers Lobbying world Overnight Tech: Senators place holds on FCC commissioner MORE (D-W.Va.), applauded the bicameral letter on Thursday.

"I strongly support the leadership’s effort to clarify Congressional intent regarding the medical loss ratios," Franken said. "I worked hard on the final provisions in the health reform law and we need make sure that the regulations are clear so that consumers receive the full rebates they are entitled to under the law."