HHS: Prevent Insurance Co. Abuses, Set a Fair Medical Loss Ratio

          The interim final regulation on the medical loss ratio (MLR) issued by HHS on November 22, 2010, offers substantial consumer protections.  However, it opens a gaping “greenwashing” loophole that will let insurance companies count marketing expenses and ill-defined wellness programs as medical care, reflecting the recommendations of the National Association of Insurance Commissioners (NAIC). Congress has documented that “MLR shifting” has already begun.

            The “wellness” activities permitted to count as medical expenses could include “Activities that increase the likelihood of desired health outcomes.” While buying a lottery ticket might not count, the entire section invites abuse.

            The standard goes well beyond both the new Affordable Care Act (ACA) and existing state laws and opens an entirely new category of expenses that insurance companies can rely on to justify reduced spending on care for subscribers, and thus denials of care. It will frustrate the aims of the law and instead give undue weight to the views and interests of the insurance industry. This standard must be fixed by HHS.

            The Affordable Care Act (ACA) requires health insurance companies to spend at least a minimum percent of premium dollars on the medical claims of subscribers. Companies that fail this test must provide rebates to those same subscribers. The intent of imposing the MLR is to “bring down the cost of health care coverage” and “ensure that consumers receive value for their premium payments.” It should provide incentives to the health insurance industry to actually pay claims instead of denying them, to operate efficiently, and to negotiate assertively with health care providers, rather than simply passing on cost increases to consumers. But companies can frustrate the intent of the law by inflating medical claims to include other expenses, including marketing expenses typically considered part of administration.

            The insurance industry has already begun to manipulate the MLR rules for its own gain, and has stated its intention to game the system by raising premiums to make up for any constraints imposed by the new law, The Senate Commerce Committee has documented that, “At least one company, WellPoint, has already ‘reclassified’ more than half a billion dollars of administrative expenses as medical expenses, and a leading industry analyst recently released a report explaining how the new law gives for-profit insurers a powerful new incentive to ‘MLR shift’ their previously identified administrative expenses.”

            It is vital that the “medical” and “quality improvement” portion of insurance expenditures be defined strictly, and that standardized reporting requirements be detailed to prevent miscategorization of administrative expenses. HHS should address this problem.

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