Pink Fire Pointer Healthcare Reform Update - 15June2010

Healthcare Reform Update - 15June2010

Health Reform’s Medical Loss Ratios Threaten Individual Insurance Market
  • State insurance officials just announced that they fear health insurance companies will cancel policies and leave the individual insurance market in some states because of a provision in the new healthcare reform law.
  • The provision in the law, effective Jan. 1, 2011, requires most insurers to spend a larger share of their premium revenue — at least 80 percent for the individual market — on medical care and quality-improvement services, rather than administrative expenses and profits.
    • Insurers must refund money to their individual consumers if they do not meet the medical-loss ratios.
  • The National Association of Insurance Commissioners (NAIC) is recommending that the federal government allow a gradual three-year transition for this requirement.
    • Their proposed draft states that federal officials should lower the threshold on a state-by-state basis if immediate enforcement of the requirement would destabilize the individual insurance market.
  • State officials, which comprise the NAIC, expect to submit their recommendations to HHS sometime during July 2010.
    • The law gives the NAIC a special role to advise the Secretary of HHS about defining and calculating medical-loss ratios.
    • The law also says the HHS Secretary can adjust the medical-loss ratio in a state if she finds that enforcement of the full 80 percent requirement would “destabilize the individual market” there.
  • The NAIC does not list specific states that may need the requirement adjusted, but they would likely include less-populous states with relatively few insurers. However, even California officials have said they are worried about the provision, as they think insurers will be compelled to drop out of the individual market under this provision of the federal law.
  • Millions of people get insurance from companies that do not currently meet the medical-loss target.
  • If an insurer does decide to exit the individual market in a state, it must give 180 days’ notice to policyholders.
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