The Open Enrollment Convergence: Scope and Resources

To state the obvious, there are 12 months in the year. Unfortunately for health insurance companies, brokers, exchanges and those they serve, various health care coverage open enrollments for most Americans are crammed into less than four of those months. The scope and challenge of this Open Enrollment Convergence is mind-boggling.

Open Enrollments by the Numbers

Medicare’s open enrollment period is October 15th through December 7th of each year. Open enrollment for individuals runs from November 1, 2015 through January 31, 2016. The majority of small and large group plans renew on either December 1st (because last year employers wanted to put off coming into the ACA market for as long as possible) or January 1st (so benefit years coincide with calendar years).

Cramming all these open enrollments and renewals into a 15 week period impacts most Americans. The US Census Bureau estimates that in 2014 enrollment was:

  • 50 million in Medicare
  • 60 million in Medicaid
  • 45 million in medical policies they purchased themselves (primarily individual and family coverage)
  • 175 million in private group health coverage

Renewing any one of these cohorts in a two-or-three months is a Herculean challenge. Deal with all of them at once and you’ll find the Demigod in a fetal position off in a corner somewhere muttering about ACA compliance reports. Yet, all at once is when they’re happening.

Resources:

Alcohol is not a resource. Nor will it help get brokers through the Open Enrollment Convergence. Avoid it until February 1st. The three sources, however, will help. This blog’s Health Care Reform Resources page lists additional useful sites.

The National Association of Health Underwriters, the preeminent organization for health insurance brokers, consultants and benefit professionals, publishes a lot of extremely useful material. The NAHU Compliance Cornered Blog is accessible to everyone. Tools and information in the association’s Compliance Corner are available only to members, but well worth the dues. One feature allows members to pose detailed questions to experts and quickly receive a personalized response. The breadth and depth of the compliance expertise available through this service is impressive and invaluable.

The Henry J. Kaiser Family Foundation is an outstanding resource for dependable information on health policy and parsing the Affordable Care Act. (The Foundation is unrelated to Kaiser Permanente health plans). The Foundation’s Health Reform FAQs recently updated 300 items on a broad range of ACA topics. If you’re into Twitter, you’ll benefit from following the Kaiser Family Foundation. (Of course, if you’re into Twitter I hope you’ll follow me as well, he shamelessly plugged).

The Department of Health and Human Services is the government’s lead agency on the ACA. The HHS Health Care site serves up extremely helpful data, forms and explanations along with a bit of not unexpected ACA cheer leading.

Go Team

I wish I had a pithy message to help get you through the fourth quarter renewals; some poster-worthy motivation you could hang on your wall. However, in the accurate words of the folks at Despair.com, “If a pretty poster and a cute saying are all it takes to motivate you, you probably have a very easy job. The kind robots will be doing soon.”

Robots will not be handling an Open Enrollment Convergence anytime soon (the stress would rupture their … whatever robots rupture). New tools are on their way to help benefit brokers manage the workload. These, however, will amplify the high-touch service and expertise benefit brokers deliver, not replace agents.

Because there’s nothing easy about helping consumers find and use the health care coverage they need. Fortunately, professional benefit brokers are really good at doing just that.

This may not be a motivational statement, but it is factual.

Rate Regulation Grants Announced by HHS

Carriers set health insurance premiums based on several criteria. The single biggest component is the expected cost and utilization of medical services. Then there’s the need to cover overhead (such as operations, sales costs, marketing and armies of lawyers to deal with regulation) and profit (or retained earnings for non-profits). Insurers know they don’t operate in a vacuum, however, so they consider the pricing of competitors as well.

What’s a reasonable premium? Arguably it’s one that covers claims, operations, provides a profit, but is still affordable to consumers, at least relative to the pricing of competing carriers. This approach assumes an effective market. Carriers that get greedy (and overcharge) will lose market share to more fairly priced competitors. Those that underprice their plans one year will need to seek large premium increases the following year to make up for losses. At any one time a particular carrier’s pricing may be out-of-whack (to use the technical term), but over time the market is supposed to work things out to keep pricing reasonable.

The market, however, can be messy. A carrier seeking to make up for losses in prior years may need to seek substantial rate increases (think 40-to-50 percent).  Within the walls of the insurance company such increases makes perfect sense. Medical costs and utilization are skyrocketing. Operating efficiencies take time to achieve (without totally degrading customer service). Executives are rarely first in line to reduce their own take-home pay (nor would it amount to a lot if they did). The only way to make up for underpricing errors is to raise rates – a lot.

Outside the bubble that is most corporations, however, double-digit premium increases appear more like highway robbery than a logical business decision. How many items in our economy go up 10, 20, 40 percent of more each year? Year-after-year? Cars don’t. Most food items don’t. Gas prices may skyrocket, but they drop from time-to-time, too. Health insurance premiums seem to be on a one-way trajectory upward. When’s the last time health insurance premiums fell? (1996 is the last time I recall, but I may be missing some other exceptions).

This pricing trend is unsustainable. Some of you may recall the “rule of 72” from your economics (or math) classes. The rule of 72 is a way to estimate how long, given a growth rate, it takes to double a number. Just divide the assumed rate of growth into 72. Invest $100 in an account paying 5 percent interest and your principal will double in roughly 14.4 years (72/5 = 14.4). Increase the cost of health insurance by 10 percent per year and premiums will double in 7.2 years.

So here’s the situation: carriers price their products to cover their costs (both claims and administration), to earn a profit and to be competitive in the marketplace. Consumers see their costs increasing at unacceptable levels. What’s a lawmaker to do?

If that lawmaker believes in markets they let nature take its course. If the lawmaker: 1) believes the market isn’t working; and 2) government needs to step in when markets are broken, you require carriers to get government approval before raising their rates. The Patient Protection and Affordable Care Act includes provisions to encourage this latter approach. Or as the federal government’s web site puts it, “The affordable Care Act provides new tools and resources to protect consumers and employers from large and unreasonable health insurance premium hikes.”

That encouragement is the reason the Department of Health and Human Services is making $199 million in grant funds available to help states “create or enhance their premium rate review programs.” The goal is to bring greater transparency to the rate making process while assuring that the states are “comprehensively” reviewing carrier’s proposed prices hikes.

The idea is to prevent “unreasonable” rate increases – which begs the question: what’s unreasonable? According to a regulation proposed by HHS, that would be any rate increase of 10% or more in the individual and small group market segments. Maybe. The 10 percent threshold doesn’t determine whether a rate increase in unreasonable, but it would trigger a state review to determine if it is. Carriers would also need to post their justification for such rate increases on the Internet.

Personally, I don’t mind increased transparency in health insurance pricing. As I’ve written before, carriers need to educate consumers and lawmakers about the value they provide. After years of being hammered politicians in both parties and reams of articles about denied or rescinded coverage, the general public would be excused asking “what is it you folks do that’s of any benefit?”

So if the states ask tough questions and make carriers justify their increases, I’m fine with it. A second set of objective eyes couldn’t hurt and as I’ve noted in an earlier post, the resulting dialogue could be a way to educate the public about how rates are driven by the cost of medical care. But what we’re likely to see is an increasing number of states deciding their regulators need to sign off on any rate increase (some states already do this).

Inserting politics into the premium setting process distorts an already messy process. What politicians (or their appointees) are going to sign off on a significant rate increase – even an objectively necessary substantial premium hike – in the middle of an election season? Rates are already impacted by the underwriting cycle, now they are to be beholden to election cycles? The calculation for a politician is simple: if they allow a substantial rate increase they anger voters; if they deny it they upset an insurance carrier. Sure they could try to explain to their constituents why the rate hike was needed. But that’s hard work. It’s far easier to just say no.

Nor are public officials likely to link medical cost increases to premium hikes. Far easier to attribute increasing costs to greedy insurance executives than doctors or hospitals. Nor is there anything regulators with the authority to reject premium increases can do about increases to medical costs. The PPACA does not give states the power to tell doctors what they should charge for a given procedure. Anyone who has read this blog for long knows I’m not a fan of a single payer health care system. I do respect, however, the honesty of single payer advocates who recognize that their approach is about controlling the cost of health care at its source – what doctors and hospitals charge for care.

Advocates of increased government involvement in rate setting believe it will help lower costs. And there’s no requirement that states seek approval powers over premiums to qualify for the grants. But some (I’m looking at you California) no doubt will.

There are cost containment provisions in the PPACA. Certainly not enough, but they’re there. Rate regulation, and encouraging states to establish themselves as the final arbiters of what rate increases are permissible, is not one of them.

Governors and HHS in Violent Agreement Concerning Exchange Flexibility?

While the Patient Protection and Affordable Care Act is federal law, much of its implementation is  in the hands of the states. Near the top of the list on the state’s to-do list is the creation, design and operation of the health insurance exchanges.

Not all Governors are happy with this burden. They are busy with other priorities, such as keeping their states from going bankrupt. However, the PPACA makes it hard for Governors, even those who oppose the new health care reform law, from avoiding their exchange-related responsibilities. If states fail to create an acceptable exchange in time (acceptability being determined by the Secretary of Health and Human Services) the federal government will step in and establish (and run) an exchange of its own in the non-cooperating state.

Which is one reason 21 Governors sent a letter to HHS Secretary Kathleen Sebelius asking for more control over the structure and operation of the exchanges. (Thanks to blog reader The Insurance Barn for commenting on this letter when it first became public). That all those signing the letter were Republicans suggests another reason might be political – shocking, I know. But focusing on the substance of the Governor’s concerns, they asked for six concessions (in their own words):

  • Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
  • Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
  • Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs)
  • Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
  • Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
  • Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study must be conducted by a neutral third-party research organization agreed to by the states represented in this letter.

Most of these items are non-controversial. In fact, soon after the letter was sent, Politico Pulse was reporting on a statement from HHS claiming that the PPACA already offered states the flexibility concerning the exchanges the Governors were seeking. Specifically, HHS claims (in its own words):

  • States will determine which insurers are permitted to offer products in the Exchanges.
  • States can choose benefit rules that meet the needs of their citizens.
  • Consumer-driven health plans and Health Savings Accounts (HSAs) will be available.
  • States have discretion over Medicaid coverage.
  • New funding to establish Exchanges and modernize eligibility systems is available.
  • Reliable, independent cost estimates are available.

So, the Republican Governors and the Democratic HHS Secretary are in violent agreement on this matter, right? Well, that depends on through what color lenses one is looking.

Substantively, probably. Some of the Governors’ concerns do seem to be addressed already in the PPACA or related regulations. Others are non-controversial and non=political. However, the independent cost estimates referred to by the HHS fails to meet the Governors’ criteria – to to address their concern regarding the financial impact on their states. There are some unanswered subtleties remaining, too, as well as new concerns that will no doubt surface over time.

Politically, so long as either party feels there are points to be made in the run-up to the 2012 elections by engaging in these disputes, they’ll continue to engage in these disputes. And since both sides do believe there are points to be made, expect a lot of letters passing between Governors and HHS.

What’s unfortunate in all this is that some harder questions concerning the exchanges are not being addressed. Leave aside the most important one, “are exchanges really necessary?” Most Democrats and Republicans believe they are. There are other questions needing answers, however.

For example, if exchanges will accomplish so much , why do they need special advantages? Why are tax credits offered to small businesses and premium subsidies made available to consumers only if they obtain coverage through the exchange? This assistance could be made available simply enough to those getting insurance outside an exchange. If lawmakers and regulators truly believe in maximizing consumer choice and are convinced the aggregated buying power of the exchanges will deliver increased value to small businesses and consumers, why limit the availability of the incentives? If they’re right, the exchanges will come to dominate a state’s insurance marketplace because consumers recognize their value. If not, then they have failed. Such real world feedback should be welcomed by policymakers.

Exchanges should be required to compete on a level playing field with the health plans available in the broader market. Governors of both parties should be asking for the flexibility to make this possible. And HHS should have the confidence in the exchanges necessary to make that goal a reality.

Requirement that Carriers Justify Double-Digit Rate Increases a Teachable Moment?

Reasonableness, like a host of other things, can be in the eye of the beholder. Regulating reasonableness, consequently, is nothing like a science. Yet the Patient Protection and Affordable Care Act requires health insurance carriers to disclose their reasons for “unreasonable premium increases.” The Department of Health and Human Services has issued a preliminary version of the regulation aimed at determining how and where this rate increase disclosure will take place.

The draft regulation, which is open to comment and subject to change, requires carriers to publicly disclose any individual or small group rate increases higher than 10 percent. While double-digit increases will not be automatically considered unreasonable, they will trigger a review by state or federal regulators to determine if they’re justified. States will get the first shot at scrutinizing the rate hikes. Only if HHS determines a state lacks the ability to do a thorough actuarial review of premium increases will federal regulators step in. States are eligible for federal grants to bolster their review capabilities and 45 states have taken advantage of the program to date.

Over time this 10 percent threshold could be adjusted on a state-by-state basis according to the National Underwriter. “After 2011, a state-specific threshold would be set for the disclosure of rate increases, using data that reflect each state’s cost trends.”

HHS has the authority to require disclosure of large group rate increases, but chose not to do so.. They’re asking for comments on the advisability of seeking disclosure of large group claims, but according to the National Underwriter, regulators are concerned that doing so would not align with current practices. 43 states, however, already review — and some can deny — rate increases on individual and small group medical insurance coverage. Significantly, neither the regulation nor the PPACA gives HHS the power to deny rate increases. If they determine a premium hike sought by a carrier is unjustified it will post that finding on a government website, but the increase will still be permitted (again, unless a state regulator prevents it). 

The mechanics of the rate review are described in the proposed regulation. To oversimplify, if its desired rate increase is over 10 percent or greater, the carrier will need to notify HHS and post its justification on the insurer’s web site. In evaluating the increase HHS will consider whether:

  1. “the rate increase results in a projected future loss ratio below the Federal medical loss ratio (MLR) standard
  2. “one or more of the assumptions on which the rate increase is based are not supported by substantial evidence.
  3. the choice of assumptions or combination of assumptions on which the rate increase is based is unreasonable.”

The timing of the rate increase is determined by state law, so HHS’ review cannot delay implementation of the rate change. What it will do, however, is require disclosure of a great deal of information, bringing an unprecedented amount of transparency to the rate setting process.

Transparency is one of the reasons Consumers Union praises the draft regulation. According to Kansas City InfoZine, its spokesperson, DeAnn Friedholm, cited two benefits the group expects the premium regulations to deliver: “First, it provides a strong incentive for insurers to do a thorough review of their justifications before asking for big rate increases. And second, it will help consumers better understand why their rates are going up and they can decide to look for better plans.”

Which could lead to an interesting result. As the Consumer Union notes, the regulation could “help consumers better understand why their rates are going up .…” And the scrutiny on carriers explanation for increases will be intense. Which makes the posting of the reasons behind the price hikes a powerful  “teachable moment.”

Carriers can use the disclosure to tell a detailed explanation for their actions. For example, in California, hospital rates increased by 150% between 2000 and 2009. Carriers can, and should, get creative in presenting how this medical trend drives premium increases. The question is whether carriers, their actuaries and their attorneys have the skill and willingness to take advantage of this opportunity to present the full story behind skyrocketing insurance costs. Regence Blue Cross Blue Shield provides an example of a meaningful explanation for premium hikes. They even explain the impact of deductible leverage, which is no mean feat.

Regence is providing a general explanation of how pricing works, something other carriers will need to do as well. However, when justifying specific rate increases, Regence and others should go further, naming names. A hospital increases their reimbursement rates by 10%? Name the hospital. A pharmaceutical manufacturer introduces a new drug that costs 20% more than the effective medicine it replaces? Name the drug and the manufacturer.

Carriers could – and should – get even more specific. If the hospital initially sought a 20% increase the insurer should note it’s success in reducing the increase. After all, the beneficiaries of carriers’ successful negotiations with providers are consumers. As I’ve noted previously, health insurers need to do a better job justifying their role in the system. Most health insurance executives would justify their enterprise’s contribution to the system as lowering the cost of health care. Yet with every rate increase they undermine this argument by offering the broad excuse that premiums are rising due to increases in “medical inflation.” Well, now they have the forum and the reason to be specific about what — and who — is driving that inflation.

Who knows, some day regulators may decide to ask medical providers if their charges are reasonable. Until then, there’s no reason carriers can’t ask that question – publicly and loudly. As long as transparency is coming to rate setting, the bright light of disclosure may as well shine on as many parts of the system as possible.

NAIC Submits Standardized Benefit Summary Recommendations to HHS

Before I worked for a carrier I’d often wonder if the folks who write health plan benefit descriptions go to a special school that teaches them how to write these documents in as confusing and obtuse a manner as possible. After all, each carrier writes documents in their own way sometimes using the same or similar terms to mean something different. As a General Agent, my first job in the industry back in the early 80s, I spent considerable time trying to rewrite these benefit summaries into a somewhat standardized form to help brokers and their clients make more accurate and meaningful apples-to-apples comparisons.

Even today general agents and quoting systems devote a tremendous amount of time, money and resources to molding the various descriptions published by health plans into standard benefit summaries. In fact, one of the biggest barriers of entry for new software aimed at presenting rates and benefits is not the quoting engine itself, but the data entry and especially the benefit descriptions. Given the number of medical insurers and HMOs competing in today’s health care system and that even the offerings from the same carrier can vary significantly from state-to-state, we’re talking about literally thousands of benefit plans. The effort required to wrestle this tsunami of data into a standard format has required a Herculean effort.

The Patient Protection and Affordable Care Act is about to change that. Section 1001(5) of the PPACA requires the Secretary of Health and Human Services to work with the National Association of Insurance Commissioners to develop standards for benefit summaries and coverage explanations for individual and group insurance products. Significantly, HHS and the NAIC is required to establish a working group of representatives from carriers, consumer groups and others with expertise in the area.

After over 25 meetings lasting over 120 cumulative hours with approximately 100 working group members or observers participating, the NAIC has sent to the Secretaries of HHS and the Labor Department their recommendations for both standard benefit descriptions and a glossary.  The recommendations are now available for public review and comment. The Secretary of HHS is required to finalize the standards by March 23, 2011 and carriers must provide the forms to consumers beginning March 23, 2012.

The glossary uses plain language to describe terms of art such as co-insurance, deductible, balance billing, primary care provider and the like. Some terms, such as “formulary” are missing, but the list is relatively complete and will no doubt be added to over time.

And these are terms of art. I once did a man-on-the-street interview asking random individuals what certain health insurance terms meant. One, a teacher, described “co-insurance” as referring to the situation where two people in the same household both have insurance. (Being me, I asked if the two people had to be married. He replied that was a local issue, but not in San Francisco).

For those unfamiliar with the term, the NAIC proposed glossary defines co-insurance as “Your share of the costs of a covered health care service, calculated as a percent (for example, 20%) of the allowed amount for the service. You pay co-insurance plus any deductibles you owe. For example, if the health insurance or plan’s allowed amount for an office visit is $100 and you’ve met your deductible, your co-insurance payment of 20% would be $20. The health insurance or plan pays the rest of the allowed amount.” (And. yes, “Allowed Amount” is also defined in the glossary).

The draft NAIC standardized benefit summary is also a remarkably document. (Remarkable in that most people don’t expect government committees to put forward clearly written work). One welcome feature: in addition to explaining the benefits, the NAIC benefit descriptions also includes a short “Why This Matters” statement which puts the information into a useful context.

The documents could be improved, but even as they stand, they’re much better than what is often provided by carriers and quoting systems. And by aggregating these descriptions in one place they will make it easier for entrepreneurs to find new and helpful ways to provide this kind of information to consumers.

Working at a carrier I discovered there was no school teaching brochure writers to be confusing. Lawyers and the general dynamics of “writing by committee” made such a school unnecessary. And the impact of these groups will continue to assure that each carrier presents information in a unique voice. Still the standardized formats will assure a lot more transparency and clarity across products than exists today.

The PPACA has many provisions that are counter-productive. Anything it does to bring intelligibility and understanding to plan descriptions, however, is a good thing.

Commission Exemption Not in NAIC’s MLR Rules, But Issue is Still Open

The National Association of Insurance Commissioners approved rules defining how carriers will calculate their medical loss ratios as is required by the Patient Protection and Affordable Care Act. The NAIC’s proposal will now be considered by the Department of Health and Human Services which is expected to finish its review of the regulations in a few weeks. Which is a good thing considering the PPACA requires carrier to begin meeting the medical loss ratio targets established by the health care reform law (80 percent for individual and small group plans; 85 percent on coverage for groups of 100+) beginning January 1, 2011.

In approving the MLR regulations the NAIC rejected or tabled amendments put forward by insurers and brokers. One change some insurers sought was to allow carriers to calculate their medical loss ratios based on national business (the Commissioners are requiring the calculations to be based on a state-by-state spending). Another would change the “credibility adjustment” formula used in the calculation.  Apparently this would have made it easier for smaller carriers to meet the MLR target.

The amendment put forward by brokers to exclude commissions from medical loss ratio calculations was withdrawn and the issue was referred to a working group of the NAIC’s executive committee. While some interpret this as ending the issue, that is far from clear.

The National Association of Health Underwriters along with the National Association of Insurance and Financial Planners and the Independent Insurance Agents and Brokers of America were the advocates of the broker commission amendment. I attended a conference today at which NAHU’s CEO, Janet Trautwein spoke. I’ll do my best to summarize my understanding of the situation based on her talk bolstered with reporting by National Underwriter.

Apparently there were enough votes among Commissioners to pass the broker commission amendment. However, NAIC lawyers questioned the authority of the organization to promulgate such a rule and warned that it conflicted with other proposals submitted to HHS by the NAIC. This led to a concern that including the broker commission exemption would lead to HHS rejecting the NAIC rules altogether. At the very least, HHS was likely to strike the commission exemption.

To avoid this result  a compromise was brokered between HHS staff and supportive Insurance Commissioners. A joint NAIC executive committee/HHS working group will be created to address broker compensation and the medical loss ratio provisions of the health care reform law. The MLR amendment advocated by the agent associations will be the “starting point” for the working group’s deliberations. Aware of the need to resolve this issue quickly, the NAIC committed to convening the working group immediately (which, I assume, means in in a few weeks). The goal of the commissioners supporting this approach is to work with HHS to fashion a regulatory solution that ensures equitable compensation for brokers.

Ms. Trautwein noted the possibility that the working group approach could result in a better outcome for all parties (regulators, carriers and brokers) than if the amendment had been adopted by the NAIC. This would certainly be the case if exempting commissions was deemed, as the NAIC lawyers warned, to exceed the NAIC’s authority.

NAHU and its allies have certainly built a great deal of political support among Insurance Commissioners (both Democrats and Republicans) behind the need to preserve a role for professional brokers in the new health care reform system being created as a result of passage of the PPACA. They recognize the value brokers bring to the products they sell and, as importantly, service well beyond the initial purchase. They also recognize the heavy service load underfunded and ill-prepared state agencies would need to take on if producers are removed from the health insurance marketplace.

There are some, including commentators on this blog, who believe without the commission exemption brokers will be put out of business. I disagree and will explain why in a future post. What’s significant to note now is that the treatment of broker compensation under health care reform has yet to been finally resolved. And there are individuals of good faith from both parties seeking a workable solution. That doesn’t guarantee a positive result, but it certainly creates the possibility for one.

MLR Rules Still in Play

The Patient Protection and Affordable Care Act requires carriers to spend a specified proportion of the premium dollars they take in on medical care and health quality efforts. That’s the law. As I’ve noted previously, legislation creates a framework. It’s the regulations and day-to-day interpretations of the law that determines its impact. There are lots of opportunity for regulators to soften the edges of the law or sharpen them up.

  • How should the law be applied to small or new carriers who may be subject to extreme fluctuations in their spending ratios that are beyond their control?
  • How should nurses hotlines be treated?
  • Should health quality efforts be considered non-administrative expenses only if they actually improve quality? And if so, what will that do to innovation?
  • How should commissions and other fees received by carriers but passed-through entirely to independent third-parties be treated?
  • At what level should carriers be required to meet the medical loss ratio requirements (i.e., state level? nationally?)

And the list goes on.

The National Association of Insurance Commissioners, working with the Department of Health and Human Services is tasked with resolving these issues. The NAIC provided some meaningful clarity last week when it published draft rules for how carriers were to calculate their medical loss ratios. But there are still many issues that are  far from being settled. The Hill reported that Brian Webb of the NAIC outlined a host of MLR-related regulations the Commissioners are still considering during a presentation he made to the Congressional health Care Caucus.

What’s significant about what Mr. Webb had to say is not just the long list of rules being modified at this late date (the MLR requirements take effect January 1, 2011, so settling on how this provision is to be interpreted is of urgent concern), but his description of how the process of resolving these issues will play out. He indicated that an NAIC panel is expected to adopt the draft regulations on Monday, October 4th. That will no doubt be widely reported. But what will be important for those concerned about the nitty-gritty of the MLR rules to remember is his prediction that the regulations are likely to change before the full NAIC adopts the them in mid-October.

And this vote by the NAIC is unlikely to be the last word. HHS Secretary Kathleen Sebelius has to “certify” the regulations, which gives the Obama Administration an opportunity to tweak elements. Then each state has to adopt its own regulations. And while the NAIC proposal will carry great weight, states will have flexibility to adjust elements of the MLR calculation to suit their own health insurance market — and political — environments.

The Hill also reports that the NAIC will urge Secretary Sebelius to allow, on a state-by-state basis, a transition period phasing in the medical loss ratio targets as it applies to plans sold to individuals and families (non-group plans). Such an exemption would not be automatic and states would need to demonstrate that applying the  80 percent MLR on individual plans in their jurisdiction, as is required by the PPACA, would “destabilize the state’s individual market.” According to Mr. Webb, a similar transition mechanism could be established for the small group market as well.

This ongoing uncertainty will have serious consequences. Carriers will make decisions based on the best guess each makes on where the regulations will wind up (and that best guess will no doubt assume the worst possible outcome). As the regulations get clarified the carriers may seek to adjust some of those decisions creating a ripple effect of change.  All of which means consumers, employer and the brokers who serve them are going to be kept busy adjusting to an evolving marketplace well beyond the effective date of the new health care reform’s medical loss ratio provisions.

Catching Up With Health Care Reform

I’ve taken a few weeks off from blogging, but health care reform sure hasn’t taken a break. There’s a lot going on, so let’s catch up with some interesting tidbits:

  1. In April the Internal Revenue Service issued guidelines concerning one of the more popular provisions of the new health care reform bill: the tax credit some small employers may use to offset the cost of their health insurance premiums. The credit is available to qualifying group of less than 25 employees, and there’s a cap: the average premium paid for coverage in the business’ state. In other words, the amount of premium paid above these average premiums is not eligible for the credit. The list of average premiums (published by the IRS, but created by the Department of Health and Human Services) is interesting in its own right. For example, employee-only coverage ranges from a low of $4,215 in Idaho to a high of $6,205 in Alaska. (In California, where I hang out, it’s $4,628). Idaho again has the lowest premium for family coverage $9,365), with Massachusetts having the highest family premium ($14,138).
  2. In addition to the original IRS guidelines, the Obama Administration has released additional guidance to the small business tax credit created in the Patient Protection and Affordable Care Act (“PPACA”). There’s some welcome news in the material: dental and vision coverage are eligible for the credit; employers can choose the method of determining hours worked by their employees in whatever way maximizes the tax credit; and the federal credit is in addition to any state health care tax credits or subsidies available to an employer. This document also lists other benefits health care reform delivers to small businesses: the ability to pool together in exchanges; elimination of pre-existing conditions, elimination of the “hidden tax” employers with coverage currently pay (see #5, below) of roughly $1,000 per policy.
  3. You might think all this would be music to ears of small businesses. If so, it’s not enough to satisfy the National Federation of Independent Businesses. The NFIB has signed onto the law suit filed by 20 state attorneys general and governors challenging the constitutionality of the Patient Protection and Affordable Care Act. The key argument of the suit is that the federal government has no power to regulate whether an individual to enter into an intrastate contract. According to the Associated Press article reporting the NFIB’s support of the suit, the government will argue that “a decision to opt out of health insurance is not merely a matter of personal choice. It has consequences for others, since uninsured people will get sick, or have accidents, and someone must pay for their care if they can’t afford it.  Individual decisions to forgo insurance coverage, in the aggregate, substantially affect interstate commerce by shifting costs to health care providers and the public.” Welcome to a gray area of constitutional law. Feel free to argue one side or the other all you want, but there are responsible arguments on both sides. And they’ll be argued before many courts over the next three or four years.
  4. Much of the health care reform debate focused on the pricing practices of health insurance carriers. Now focus is moving towards the pricing practices of medical providers. In Massachusetts, for example, the U.S. Department of Justice is investigating whether one of the state’s hospitals are guilty of violating antitrust laws. According to an editorial in the Boston Globe, the DOJ the inquiry was launched after it was shown that some hospitals are demanding “rates much higher than others … for identical procedures.”  Meanwhile, the same editorial cites a report by Massachusetts Attorney General Martha Coakley that showed that hospitals with “geographic monopolies” use their market clout to push rates up “and contributes to annual increases in insurance premiums that greatly exceed the cost-of-living index.” Nice of someone to notice, isn’t it?
  5. There tends to be a lot of two-sided coins when it comes to health care reform. Take the term “Medical Loss Ratio.” This refers to the percentage of premium dollars spent on medical care and health quality by health plans. The Venture Cyclist blog asked an interesting question, “Why do they call it Medical Loss Ratio? Why is looking after me (or you) called ‘Medical Loss’, when the whole point of a health care system is to look after me (or you)?” He’s got a point. Calling this expense “Wellness Investment” (as the Venture Cyclist suggests), would be as accurate. He goes further, suggesting that what’s not spent on looking after the health of premium payers be termed an “Administrative Loss Ratio.” It reminds me of when folks started referring to cost-shifting (which is the increased cost insured consumers pay to cover expenses incurred by their non-insured neighbors) a “hidden tax.” Words do matter.

Well, that’s enough catch-up for now, but there’s more to come.