State health officials approve key reform plan
By: Sarah Kliff and Jennifer Haberkorn
October 21, 2010 09:39 AM EDT
ORLANDO – State insurance commissioners on Thursday approved rules shaping how insurance companies will have to account for their medical spending beginning next year, a key piece of the health care overhaul.
The National Association of Insurance Commissioners voted down final attempts to change the regulation and voted unanimously to move it to the Department of Health and Human Services, which will have to review the policies before they have the force of law.
The health care overhaul required the group to define the very technical details governing the rules, called medical loss ratios. The provision was designed to pressure insurance companies to lower premiums and Democrats have heralded it as one of the most important consumer protections in the law.
Under the law, insurance companies will have to spend 80 to 85 cents of every dollar they collect in premiums on medical care or items that improve quality.
Some cost items, such as doctor’s bills, were clearly identified from the outset as medical spending. Insurers’ advertising and overhead were quickly put in the administrative category. But many other items, such as nurses’ hotlines, some federal taxes, insurance agents’ commissions and programs to improve care coordination, fell into a grey area and were subject to hours of debate.
Under the final regulation, insurers can categorize a number of health-spending activities as “quality improvements.” Spending to reduce hospital re-admissions, improve patient safety, reduce medical errors and certain health information technology investments all made the final cut.
But regulators counted other costs, such as programs to prevent fraud, as administrative costs despite some protest from the insurance industry.
HHS Secretary Kathleen Sebelius, charged with certifying the regulation, praised the insurance commissioners.
“These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers,” Sebelius said in a statement. “Not only do they ensure consumers receive better value for their health care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage as we transition to the new marketplace in 2014.”
It’s unclear whether she will tweak the language or has to accept or deny it outright.
“HHS has been very involved,” NAIC president and West Virginia Insurance Commissioner Jane Cline said after the vote. “They have heard all the debate and discussion…as we move forward, they’re clearly aware of what’s in there.”
Liberal consumer groups lauded the movement forward on the regulation.
“We are very proud of the NAIC this morning,” said Tim Jost, an NAIC consumer advocate and law professor at William & Lee University. “Congress asked them to do a job and they did it with openness, integrity, and dignity. Although we did not get everything we wanted in the MLR rule as consumers, we think the rule is fair, workable, and faithful to the law.”
Health insurers warned that the regulation would have the opposite effect.
“The current MLR proposal will reduce competition, disrupt coverage, and threaten patients’ access to health plans’ quality improvement services,” said Karen Ignagni, president and CEO of America’s Health Insurance Plans.
“I think the sky is falling argument is just not accurate,” said Kansas Insurance Commissioner Sandy Praeger, who led the health discussions. “The changes will occur over time and we will adjust and make recommendations to modify it if we see a need. There will be some companies that I think will decide, they have a very small book of business in a state and they’ll decide maybe it’s not worthwhile to stay in the state.”
The regulation’s passage ends nearly seven months of debate, but lobbying intensified in the final days at the group’s convention in Orlando, Fla.
“I have been lobbied more on this subject matter than I have on any other matter in my career,” Cline told POLITICO. “It’s been the provider community, it’s been consumer advocates — not just consumer advocates on a national basis, but consumer advocates in my home state. It’s been the insurance industry.”
Commissioners proposed three amendments to significantly change the regulation, many of which were supported by industry, but all were struck down.
The most contentious issue has been how to deal with insurance agent and broker commissions. The adopted rule categorizes commissions as administrative costs.
Agents and brokers argue that doing so would only encourage insurers to cut their commissions so that it’s easier for them to meet their spending requirements.
Commissioners have raised concerns that if agents go out of business, their state insurance departments will be flooded with consumer inquires such as how to buy coverage or how to deal with complex claims. Agents also have significant political muscle in their states. While some commissioners are elected, many are appointed by governors. And some of them are up for reelection next month.
While agent and broker groups aggressively pursued an amendment removing their fees from the calculation altogether, numerous legal experts have said it would be illegal to do so.
The amendment was ultimately withdrawn when commissioners voted instead to create a group to work with HHS on the issue, a move that frustrated brokers who believed they had enough support to move the amendment forward.
“There’s no reason for the NAIC to adopt the amendment this morning. It had the support of the majority of commissioners,” said Wes Bissett, senior counsel at the Independent Insurance Agents and Brokers Association,.
Some commissioners also expressed concerns that HHS would not be responsive to their concerns.
“HHS cannot be trusted on the issue of MLR and the agents,” Mississippi Insurance Commissioner Mike Chaney said during the Thursday vote. “The problem I see is if they go into regulation mode, we lose all ability to have input on the issue.”
A proposal to give insurers credits, based on their size, to help them reach the spending requirements failed 19-34, with one abstention from Texas.
Another amendment to allow insurers to calculate medical spending at the national level instead of the state level – which some argue would make it easier for large companies to meet the requirement – was introduced but withdrawn.
The NAIC established a group in the spring to work on the regulation. Since then, it’s held more than 27 open conference calls discussing the requirements and details. Many commissioners said they were reluctant to overturn the group’s work in the final days.
Praeger also suggested during the debate Thursday that commissioners are operating in some unchartered territory and are expecting to make adjustments to the requirements next year.
“I know we’re struggling with a lot of unknowns,” she said.
Several states have medical spending requirements in place now, but have different details or quotes and don’t require insurers to issue rebates if they don’t meet them.
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