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Implementation of theMinimum Medical Loss Ratio     Timothy Stoltzfus Jost  Washington and Lee University
MLR familiar conceptNAIC: “A measure of relationship between A&H  claims and premiums”Traditionally used by:  investors to...
State guidelines• NAIC model guidelines, 50% to 60%• 34 states require reporting in individual  market• 14 states impose m...
State and federal MLR not the same• Federal MLR excludes taxes and regulatory  fees from denominator• Federal MLR includes...
2718 of the PHSA• Part of title XXVII of the Public Health Services  Act (HIPAA). (42 U.S.C. s. 300gg-18)• 2718(a) require...
2718 Adjustments• State may adjust upwards• HHS may adjust downwards for state if  statutory MLR minimum would destabilize...
2718 Application• Applies to nongroup, small group, and large  group issuers• Applies to grandfathered plans• Does not app...
Regulatory drafting process• NAIC asked to establish definitions and  methodologies• Subject to certification by HHS• Meth...
NAIC and HHS process• Final regulation approved by NAIC on October  27, 2010• HHS issued interim final rule on December 1,...
Aggregation• Aggregate by individual, small, and large  group markets• Aggregate by issuer (not plan or policy)• Aggregate...
Denominator• Premium: All monies paid as a condition of  coverage• Excludes federal and state taxes and  regulatory fees
Numerator• Includes expenses for quality improvement.  Activities to  – improve outcomes  – Prevent hospital readmissions ...
Formula    Incurred claims + quality improvement_______________________________________ Premiums – taxes and regulatory fe...
Credibility Adjustments•   issuers < 1000, not credible•   Issuers 1000 – 75,000, partially credible•   Issuers > 75,000, ...
Mini-med and Expatriate Plans• Target MLR doubled (40% and 42.5%) for 2011• For 2012 and following, expatriate plans  doub...
Rebates• Paid pro rata to enrollees or employers• Paid by August 1• Usually by premium adjustments
Adjustments (Not Waivers)• To avoid destabilization of individual market• 17 states (plus Guam) have requested• Most reque...
What will the rebates look like?                   2010 Data             % of       %           Median   Rebate $   Rebate...
How will Insurers Adjust?• Reduce administrative costs• Reduce premium increases if medical costs  continue to moderate
How is it affecting agents and brokers?• Reducing commissions?• Commissions have increased with premiums• Some insurers de...
Agents and brokers• Consumers and insurance commissioners value  the services of producers• Producers believe that the MLR...
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Implementation Of The Minimum Medical Loss Ratio

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Implementation Of The Minimum Medical Loss Ratio

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Implementation Of The Minimum Medical Loss Ratio

  1. 1. Implementation of theMinimum Medical Loss Ratio Timothy Stoltzfus Jost Washington and Lee University
  2. 2. MLR familiar conceptNAIC: “A measure of relationship between A&H claims and premiums”Traditionally used by: investors to track earnings insurers to set premiums regulators for rate regulation
  3. 3. State guidelines• NAIC model guidelines, 50% to 60%• 34 states require reporting in individual market• 14 states impose minimums, 50% to 80%• 20 states impose requirements in group market• 6 states require refunds
  4. 4. State and federal MLR not the same• Federal MLR excludes taxes and regulatory fees from denominator• Federal MLR includes quality improvement expenses in numerator• Federal MLR 2 to 12 points higher than equivalent state MLR calculations
  5. 5. 2718 of the PHSA• Part of title XXVII of the Public Health Services Act (HIPAA). (42 U.S.C. s. 300gg-18)• 2718(a) requires reporting• 2718(b) requires rebates if MLR less than 80% in nongroup and small group market; 85% in large group market
  6. 6. 2718 Adjustments• State may adjust upwards• HHS may adjust downwards for state if statutory MLR minimum would destabilize market• HHS may adjust for volatility after 2014
  7. 7. 2718 Application• Applies to nongroup, small group, and large group issuers• Applies to grandfathered plans• Does not apply to self-insured; short-term limited duration plans; or excepted benefit plans
  8. 8. Regulatory drafting process• NAIC asked to establish definitions and methodologies• Subject to certification by HHS• Methodologies to take into account situation of small, newer, and different sorts of plans
  9. 9. NAIC and HHS process• Final regulation approved by NAIC on October 27, 2010• HHS issued interim final rule on December 1, 2010 certifying NAIC rule
  10. 10. Aggregation• Aggregate by individual, small, and large group markets• Aggregate by issuer (not plan or policy)• Aggregate by state – Multistate employer coverage can be aggregated in state of employer – Group health plan with multiple affiliated issuers can be aggregated• Mini-med and expatriate coverage separate
  11. 11. Denominator• Premium: All monies paid as a condition of coverage• Excludes federal and state taxes and regulatory fees
  12. 12. Numerator• Includes expenses for quality improvement. Activities to – improve outcomes – Prevent hospital readmissions – Improve patient safety and prevent medical errors – implement and promote wellness and health – Enhance use of data to improve quality – Quality portion of HIT, accreditation, ICD-10 implementation up to .3%
  13. 13. Formula Incurred claims + quality improvement_______________________________________ Premiums – taxes and regulatory fees +/- risk adjustment and reinsurance
  14. 14. Credibility Adjustments• issuers < 1000, not credible• Issuers 1000 – 75,000, partially credible• Issuers > 75,000, fully credible• Adjustments up to 8.3%• Also adjusted for average deductibles 1000 to 10,000 (up to X 1.736)
  15. 15. Mini-med and Expatriate Plans• Target MLR doubled (40% and 42.5%) for 2011• For 2012 and following, expatriate plans doubled, mini-med plans multiplied by 1.75 for 2012, 1.5 for 2013, 1.25 for 2014.• Student plans may also be treated differently
  16. 16. Rebates• Paid pro rata to enrollees or employers• Paid by August 1• Usually by premium adjustments
  17. 17. Adjustments (Not Waivers)• To avoid destabilization of individual market• 17 states (plus Guam) have requested• Most requested stepwise adjustment, some total reduction• So far six states received adjustments, eight denied, three still pending.
  18. 18. What will the rebates look like? 2010 Data % of % Median Rebate $ Rebate Member carriers members MLR millions PMPM months paying receiving millions rebate rebateIndividual 14.2 52.9 73.6 978.3 8.09 121Small 15.7 22.8 82.3 447.4 2.13 210groupLarge 15 14.7 89.4 526.7 1.13 465group
  19. 19. How will Insurers Adjust?• Reduce administrative costs• Reduce premium increases if medical costs continue to moderate
  20. 20. How is it affecting agents and brokers?• Reducing commissions?• Commissions have increased with premiums• Some insurers decreasing or changing to pmpm in recent past• NAIC study shows decreases in 2011, but many insurers have not reduced commissions, some have changed compensation structure• States with high MLRs have not seen loss of access to producers
  21. 21. Agents and brokers• Consumers and insurance commissioners value the services of producers• Producers believe that the MLR requirement has reduced compensation• But why is compensation being cut?• And what will happen if taken out of premium (Rogers bill)? – Will it will increase costs to consumers? – Will it increase the federal budget deficit – Will it increase producer compensation?

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