Insurance officials defy industry pushback, finalize key part of healthcare

Brushing off a last-minute lobbying push by the insurance industry, state insurance officials on Thursday finalized new rules requiring insurance companies to dedicate more revenues directly to healthcare costs. 

Members of the National Association of Insurance Commissioners (NAIC) who gathered in Orlando, Fla., voted unanimously to keep their recommendations virtually unchanged from a draft version of their "medical-loss ratio" (MLR) rules approved in September.

Kansas Insurance Commissioner Sandy Praeger told reporters Thursday that, while there were many amendments on the table, it "wasn't clear" that any one of them would have improved the initial proposal.

Kathleen Sebelius, secretary of the Health and Human Services Department (HHS), said the proposal is "reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers." HHS, she said, will use the recommendations to draft their (MLR) guidelines "in the coming weeks."

The new healthcare reform law requires large employer plans to dedicate at least 85 cents of each premium dollar to actual medical treatments or other activities that improve care. (The threshold for individual and small group plans is 80 percent.) Plans that don't meet those thresholds are required to give rebates to their customers, beginning in 2012.

The question remains: what activities should be included in the direct-care category? Congress didn't answer it, instead charging NAIC with developing the rules, to be certified later by HHS.

NAIC will deliver its final recommendations to HHS "early next week," Praeger said.

The insurance lobby was quick to voice its displeasure. Karen Ignagni, head of America’s Health Insurance Plans, issued a one-sentence statement saying the current rules, if allowed to stand, "will reduce competition, disrupt coverage, and threaten patients’ access to health plans’ quality improvement services."

Consumer advocacy groups, though, offered a different take. Carmen Balber, Washington director for Consumer Watchdog, applauded the NAIC for resisting the amendments urged by the insurance industry — changes that "would have gutted" the consumer protections the rules are designed to ensure, she said in a phone interview Thursday. 

Still, Balber warned that the draft proposal already contained a number of provisions that will benefit the companies at the expense of patients. Some marketing expenses could qualify as direct health spending, for instance, if companies put those costs under the umbrella of health education, she warned. Also, companies will be allowed to subtract most federal taxes from premiums before calculating medical-loss ratios. 

The tax provision runs at least partly counter to the wishes of some leading Democrats on Capitol Hill, who wrote to Sebelius in August that the law's intent was to count only those taxes and fees "that relate specifically to revenue derived from the provision of health insurance coverage that were included in [the bill]."

"Federal income taxes or payroll taxes were not intended to be excluded," the lawmakers wrote.

The letter was endorsed by Sens. Max Baucus (Mont.), Tom Harkin (Iowa) and Chris Dodd (Conn.), as well as Reps. Sandy Levin (Mich.), Henry Waxman (Calif.) and George Miller (Calif.). 

By voting to keep the draft proposal largely intact, NAIC rejected the industry-backed call to "aggregate" the medical spending of insurers across states, which would have allowed companies to spend more on care in some states versus others. 

The group also rejected industry requests to include federal income taxes on investment income and capital gains as medical costs. Similarly, NAIC said that broker costs won't qualify as medical spending for the purposes of the loss-ratio calculation.   

Praeger said Thursday that the rules are significant to consumers because they require companies to demonstrate that a large bulk of their revenue stream goes directly to patient care, "and is not just being used to enhance profits and pay large salaries." 

Still, Praeger cautioned that the process is just beginning. Large plans shouldn't have a problem meeting the 85 percent threshold, Praeger said. But for the individual and small group plans "there might be some difficulty," she said, vowing to work closely with HHS to see if the rules require some tweaking down the road.

"We'll have to work hard through those issues," she said.