One of the more problematic provisions of the Patient Protection and Affordable Care Act (PPACA) has proven to be the medical loss ratio (MLR) requirement. Insurers, Brokers and states have struggled with various issues including how to calculate the MLR and whether the MLR can be phased-in over a period of time. Recently, the Department of Health and Human Services (HHS) issued a new rule that establishes requirements for insurers to notify health insurance policy holders of the insurance company’s MLR performance.
Pursuant to Section 2718 of PPACA, insurance companies must comply with MLR standards that mandate small group insurers spend at least 80%, and large group insurers spend 85%, of the premium dollar on health care claims or quality improvement programs. . The insurance company’s cost of general business expenses and overhead is included in the administrative portion of MLR calculations. According to an HHS FAQ page, employers who operate a self-insured plan need not comply with MLR standards.
For health plans that must comply with the MLR requirements, these insurers must submit an annual report, beginning with a summary of the year 2011, to the Secretary of HHS detailing the MLR they achieved for that year. Individuals will begin to receive rebates this year.
In conjunction with the rebates that will be issued this year, the rule mandates that insurance companies provide a letter to the policy holder who is paying all or part of the premium explaining why they are receiving an MLR rebate check. The letter must contain standard notification language as provided in the rule.
The standardized language includes the following statement: "This letter is to inform you that you will receive a rebate of a portion of your health insurance premiums. This rebate is required by the Affordable Care Act—the health reform law." The rule requires that checks and notices be mailed on or before August 1, 2012.
The proposed language for this rule was developed based on feedback from several key stakeholder groups. Consumer advocates lobbied for more extensive information requirements, whereas industry advocates pushed for a more concise information requirement in an effort to hold down the cost of compliance. The standardized language in the final rule may generate some controversy – insurers who historically have met or exceeded compliance with the 80/20 MLR requirement contend they met the requirements before PPACA was passed. Further, they argue that their compliance was not dependent upon the administration’s health care reform initiatives. Click here for more information on the patient advocate and insurance industry responses and the ultimate compromise adopted by HHS.
The impact of these MLR rebate checks may be significant. The Kaiser Family Foundation analyzed the data for the insurance rebates via the 2011 Supplemental Health Care Exhibits provided by insurers in filings to the National Association of Insurance Commissioners. The analysis indicates the total of all the MLR rebate checks will be an estimated $1.3 billion. The report adds further:
Rebates are expected to go to almost one-third (31%) of consumers in the individual market. Among employers, about one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates. The share of consumers in the individual insurance market expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas.
According to the analysis, these checks could range from an average of $72 for those with insurance through a large employer to an average of $127 for those who bought individual policies.
These checks will be going out soon, and you may be receiving some questions about them. Hopefully this blog will help prepare you for those questions.
We will continue to keep you up-to-date on these and other developments in our ever-evolving marketplace. Please visit here for blog posts, polls, surveys and numerous resources, or you may visit here to view previous Legislative Alerts.
The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.