Monday, December 06, 2010

Mike and Bob on Medical Loss Ratios

Recently, I was privileged to observe a really interesting email exchange regarding the new Medical Loss Ration (MLR) rules which go into effect next month, and which promise to further erode the value of health insurance. The conversation was a result of an email I'd received from Cigna, and which I forwarded to Bob, who then forwarded it on to Mike. The email said, in part:

"On November 22, 2010, the Departments of Treasury, Labor, and Health and Human Services jointly announced Interim Final Regulations for the Patient Protection and Affordable Care Act’s (PPACA) Medical Loss Ratio (MLR) provision.

The provision states that beginning in 2011, insurers and HMOs must annually calculate their MLR and provide rebates to policyholders if their MLR (percent of premium revenue spent on claims/medical care) is less than 85 percent for large groups and 80 percent for small groups or individuals.

MLR applies to insured plans only, regardless of grandfathered status

It also mentioned that "Non-U.S. insurance companies do not file MLR."

Bob immediately glommed on to that last bit:

"Go back 20+ years or so when self funded plans with stop loss insurance was becoming popular in groups less than 1000 lives. Because US based health insurance carriers were prohibited from offering such plans (stop loss) foreign companies, most notably Lloyds, were major players along with Swiss Re, NRG (Netherlands Reinsurance Group), Sun Life, Manu Life and a few others. Even saw Tokio Fire and Marine on some risks.

P&C companies quickly figured out the ban was on US health insurance companies so carriers like Safeco, Travelers and some minor players got in the game.

This makes me wonder if this opens the door for foreign companies to get in the game and spoil the market? They can apparently skate on the MLR issue but the plans themselves would have to comply with other issues (mandated benefits) or else the insured is subject to a fine

I had focused on the way MLR will be calculated, but Bob immediately noticed something "under the radar."

Mike then responded:

"I've attached two paragraphs that I found in the preamble to the regulations, together with a full copy of the preamble & regulations. (The preamble is 230 pages long, the regs themselves 78 pages long. In effect, HHS takes three pages to explain each page of their regulation - think that will be enough?)

Anyway, it seems to me that the main thing is whether a health insurance policy is approved by any state, and only secondarily whether the health insurer is domestic or foreign. Therefore I think the CIGNA comment does not fully explain the situation and probably has raised a lot of questions.

As to stop-loss insurance, I don't find where the preamble addresses it. I think that's because the insurance reform law deals with health insurance policies and benefits, not stop-loss insurance. So I assume that none of this applies to stop-loss insurance because it's not "health insurance" and I doubt there will be any disruption in stop-loss insurance markets, whether the insurer is a US insurer, or not

Which is at once comforting and disturbing: comforting to know that the stop-loss insurance market (a vital component for self-funded plans) is probably going to be alright. But disturbing because, well, as Bob points out:

"Let me see.

Obamacrap is 2200 pages, give or take.

Regs are 78 and preamble 230 pages.

And let's factor in the numerous exceptions (over 100 companies and counting) and this thing will make the tax code seem like a Readers Digest article.

So frustrating to see what they have done, and how they are seemingly clueless about, well, just about anything dealing with the real world

Just so.
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