A collection of insurance trade groups have sent comments to the U.S. Department of Health and Human Services expressing concern if the definition of what constitutes a medical cost for insurers is “narrow.”

The groups – the Council of Insurance Agents and Brokers (CIAB), the Independent Insurance Agents and Brokers of America (Big I), the National Association of Insurance and Financial Advisors (NAIFA) and the National Association of Health Underwriters (NAHU) – indicated in a letter that they fear a “narrow” definition of medical loss ratios (MLRs) would “adversely impact spending” on important health plan activities.

Those activities the groups say could suffer include case management, wellness, disease management, and fraud and abuse programs, according to a statement.

“It is important to spend time clearly defining clinical series and administrative costs to allow insurance carriers to provide an array of services that will improve the health of Americans and provide them the health care they deserve – effectively and efficiently – including the important services provides by licensed health insurance agents, brokers and benefit consultants,” the groups said in a joint statement.

The new health care reform law requires insurers to meet minimum MLRs – the percentage of premiums collected by insurers actually spent on care that is not administrative costs or profits – to ensure they are not earning too much of a profit from the premiums they charge members.

Under the law, next year 85% of premiums in large-group market must be spent on medical care, not administrative expenses, while in the small-group and individual markets, 80% of premiums must cover medical expenses.

What qualifies as a medical expense is subject to great debate, in part because it could ultimately determine how and if insurers continue to compete in certain geographic and health plan markets.

States weigh in

The National Association of Insurance Commissioners (NAIC), which represents state insurance commissioners, submitted letters to HHS on MLRs and rate review, two issues it described as “critical” to the implementation of the Patient Protection and Affordable Care Act (PPACA), approved by Congress and President Barack Obama in March.

Jane Cline

The commissioners’ group said most existing MLRs in the small- and large-group markets exceed the law’s requirements.

“We believe current MLRs for most issuers in the small group and large group markets, when calculated with the PPACA adjustments and applied to the entire market within a state, would be higher than the PPACA minimums,” the NAIC said in its response to HHS’ request for comment.

The NAIC, compiling responses from just 27 states, citing time constraints, said in the individual market, whether insurers would meet the MLR requirements of the PPACA is “less clear.”

When the individual market data is disaggregated, the NAIC said compliance may vary more greatly. “Some issuers would have likely have aggregate MLRS below 80% in at least some states even after adjustments, while others would be well above the minimum,” it said.

Defining ‘medical’ services

The NAIC acknowledges the incentive for health insurers to have as many services as possible deemed medical. Administrative costs are expected to include marketing, promotion and compensation to agents and brokers.

“Including quality expenses in the numerator of the MLR for rebate purposes will create a strong incentive for issuers to classify as many expenses as possible in this category,” the NAIC said. “Therefore, it is important to not only specify the types of activities to be included by name, but also to distinguish between different activities that might have the same name.”

As an example, the NAIC suggests that “it is not difficult to imagine” a utilization review program being renamed as a case management program.
The NAIC suggests that market conduct examinations will enable its members to monitor the actual operation of quality improvement programs.

The NAIC made the case that implementing the federal law must take into account the experience of the states, most of which have MLR standards in place.

“These documents demonstrate how the process of implementing new PPACA provisions can be informed by our experiences at the state level,” said Jane L. Cline, NAIC president and West Virginia’s insurance commissioner, in a statement. “This is an important step as we finalize our recommendations to HHS on how to design the processes for rate review and medical loss ratio required by health care reform.”

The NAIC said it intends to focus its attention on recommendations to HHS for the definitions and calculations that make up the final medical loss ratio formula when that provision takes effect in 2011. The NAIC will complete the formulation of these recommendations and submit them to HHS by June 1.