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Some Health Insurance Companies Reeling From New Health Care Rules

Ernie Shannon's picture

For some health care entrepreneurs and consumers the prospect of a federal agency issuing guidelines telling private-sector businesses how to spend their income or what to charge their customers is anathema to all a market-based economy stands for.

That’s what happened this week when the Department of Health and Human Services (HHS) directed Trustmark Insurance to rescind its premium increases in five states and refund, where necessary, the insured impacted by the new rates. In addition, Health and Human Services has aggressively implemented a key provision of the Affordable Care Act of 2010 by demanding health insurance companies live by the new Medical Loss Ratio (MLR) rules. These directives require companies to spend no more than 20 percent of their premiums on overhead and profit and devote the remaining 80 percent to health care-related expenditures.

Medical Loss Ratio policy has become one of the most controversial aspects of the Affordable Care Act. Proponents, including officials at HHS, say the rules are meant to ensure that health insurance premium dollars are actually spent on health care rather than consumed by administrative costs and profit. The hope, the agency says, is that health insurance companies will attempt to avoid paying rebates by moderating premium increases or even reducing premiums.

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Opponents claim the MLR guidelines are arbitrary and do not take into consideration the unique setting of individual companies functioning in dramatically different economic environments. What’s more, business leaders claim that in some cases, insurance companies with higher overhead spending are offering better priced coverage than those doing business within the 80/20 ratio. In regards to the Trustmark rate increases, a company spokesman suggested this week that the insurance company will defy HHS and proceed with raising their rates.

Another part of the Affordable Care Act receiving more attention is the portion dealing with reclassifying agent and broker compensation. Because the MLR rules require companies to scale back their profit margin, one way these businesses are cutting administrative costs is by cutting compensation to agents and brokers. A recent report by the National Association of Insurance Commissioners found that a significant number of companies have reduced commissions during 2011. Consequently, agents and brokers have lobbied the commissioners to recommend that their compensation be protected from reductions under the MLR formula.

In the midst of this change in the health care business arena, HHS has given half-a-dozen states additional time to implement MLR rules. The states of Georgia, Iowa, Kentucky, Maine, Nevada, and New Hampshire have been issued waivers meaning the date by which companies in their states must fully abide by the MLR formula has been moved back. Another eight states, Delaware, Florida, Indiana, Kansas, Louisana, Michigan, North Dakota, and Oklahoma have had their requests for waivers denied. Waivers for three other states, North Carolina, Wisconsin, and Texas, are under review by the HHS.

Reference: Health Affairs