Texas Fails in Bid for Relief from Key Health Insurance Requirement
Texas health insurance companies stand to lose nearly $500 million during the next three years after a federal agency on Friday ruled against the state's request to be waived from a key Affordable Care Act requirement.
Health insurance companies will pay $476 million in rebates to thousands of their customers between now and 2014. The U.S. Department of Health and Human Services (HHS) decided Texas didn’t warrant relief from the Medical Loss Ratio, an important part of the new health law passed by Congress and signed into law in 2010. Medical Loss Ratio (MLR) requires health insurance companies to devote at least 80 percent of premiums to health care spending and reserve only 20 percent for overhead and profit. Specifically, the rule states that insurers in individual and small group markets must meet the 80 percent threshold while companies in large group markets are held to the higher standard of 85 percent.
Texas Department of Insurance officials asked the Health and Human Services agency to allow the state to postpone implementation of MLR because of the detrimental effect it would have on Texas insurance companies. A spokesman for the Department of Insurance said at the time of the request that Texas hoped to be given the same consideration as several other states around the country that have received waivers from the rule. However, fellow plains states Kansas and Oklahoma were rejected in their requests in the last few months.
In explaining the rejection, the acting director of Oversight at HHS Gary Cohen said, “We have determined that no adjustment to the 80-20 rule in Texas is warranted. This means that consumers in Texas will get the full benefit of the Affordable Care Act.” However, the Department of Insurance criticized the federal decision arguing that the rules allowed too little time for companies to adjust their business models.
“A reasonable, responsible phased-n approach would still have afforded rebates to Texas consumers without risking disruption, dislocation, and withdrawal of carriers,” the department said in a release.
In similar language following Oklahoma’s failure to receive a federal waiver, that state’s insurance commissioner said, “The MLR is an arbitrary and superficial means of judging the worth of an insurance company to its policyholders. Just because one company is able to attribute a smaller percentage of its operation costs to each policyholder does not necessarily mean its policyholders received a greater value for their dollar.”
The MLR rules depend on health insurance companies' reporting their medical loss ratios annually and those that fall short of the 80-20 ratio must rebate their enrollees an amount equal to the product difference between their actual medical ratio and the statutory target multiplied by their premium revenues.