A health care reform rule that caps how much insurers can spend on administrative costs is likely to cause headaches for employers that offer fully insured health plans to their workers. Self-funded plans also may be peripherally affected if insurers decide to cut back on services that are not included as medical expenses under the medical loss ratio definition that the Department of Health and Human Services issued last month.
Under the Nov. 22 HHS regulations, only costs directly attributable to medical care and health care quality improvement can be included in health insurers’ MLRs, which were set at 80% for individual coverage and small groups and 85% for large groups.
Under the Patient Protection and Affordable Care Act, health insurers must rebate to policyholders any amounts in excess of the allowed respective 20% or 15% in administrative costs.
Because many employers offer at least one fully insured health plan to their employees, employers that receive a rebate must allocate to employees a sum that is proportionate to their individual premium contribution.
Because the MLRs and the rebates will be calculated state by state, rather than across an insurer’s entire book of business, this could prove onerous for large, multistate employers, benefit experts say.
“Carriers that fail to meet the MLR requirement in a particular state would have to give rebates to entities paying the premium in that state,” said Richard Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.
“For employer plans, it will be paid to the employer, but then the employer has to allocate the rebate proportionate to what employees and the employer paid,” he said. For example, “say the employer pays 50%, they would have to give 50% (of the rebate) to employees.” But because “most employers’ contribution schemes are more complicated than that, it’s going to pose a bit of an administrative complication,” Mr. Stover said.
While all insured plans will be required to meet the MLRs beginning Jan. 1, 2011, HHS has given insurers that underwrite limited benefit plans, such as “mini-med” plans, a temporary reprieve.
Instead of meeting the 80% MLR threshold for individual and small-group business and the 85% MLR requirement for large-group business, mini-med plan MLRs were set at 40% and 42.5%, respectively, for 2011.
The reason was to prevent disruption of the health care market for mini-med plan members, who typically are low-income individuals who cannot afford the cost of traditional health care coverage, Mr. Stover said.
Similarly, HHS previously agreed to grant annual waivers to mini-med plan sponsors from a health care reform law provision that in 2011 restricts and in 2014 bars health plans from imposing annual dollar limits on coverage of essential services (BI, Oct. 11). As of Dec. 3, HHS had approved waivers for 222 mini-med plan sponsors.
Although the MLR requirement does not apply to self-insured health benefit plans, it could indirectly affect the scope of services that insurers offer to the self-insured market, some benefit experts say.
Tom Lerche, national lead for health care reform at Aon Hewitt Inc. in Chicago, said that because the MLRs will reduce profit margins on insured business, insurers likely would increase administrative services-only fees on self-insured business.
“Insurance companies make a lot of their profit on the insured business as opposed to the (administrative services-only) case side. To the extent that the regulations make business more challenging on the insured side and they could decrease profitability…It could impact ASO fees,” he said.
“We also have that potential because of the excise taxes,” Mr. Lerche said, referring to a provision in the reform law that will impose a 40% excise tax on plan premiums exceeding $10,200 for individual coverage and $27,500 for family coverage starting in 2018. Insurers and third-party administrators would pay the tax in the case of employers that self-fund their health care plans.
A spokesman for America’s Health Insurance Plans, the industry’s Washington-based trade group, agreed. The way the MLR regulations are structured, they cap “how much health plans can invest in programs and services that are considered administrative but may be vital to improving the quality, safety and cost of the health care system,” the AHIP spokesman said.
Because national insurers don’t account for the cost of such programs on a state-by-state basis or even by insured vs. self-insured groups, the additional administration required to calculate their costs “could make it difficult for health plans to continue to offer those services,” the AHIP spokesman said.
The availability of high-performance provider networks also could diminish in response to the MLR rules, said Shawn Nowicki, director of health policy at the Northeast Business Group on Health in New York, formerly the New York Business Group on Health.
“The activity, noted as the “development, execution and management of a provider network’ could actually be leveraged as a quality improvement activity,” he said. However, it was excluded from MLR calculations, he said.
“Many employers are actually considering or have already communicated their support for narrower provider networks that include only providers that offer high-value, quality care,” he said.
Similarly, HHS excluded “costs associated with calculating/administering individual enrollee or employee incentives” associated with participation in health promotion programs, Mr. Nowicki said.
“Excluding the costs of calculating and administering these incentives might, in the end, result in decreased uptake of certain activities or programs that are designed and proven to improve health outcomes and status,” he said.
“What the MLR requirements are intended to do is to hold down the amount of premiums that go toward administrative expenses,” said Mike Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York. “For insurers, it’s going to require them to rethink everything they do. It’s likely that some services will change as a result of MLR requirements.”
However, given that much of the innovation in health care quality improvement activities is attributable to insurer experiments in the self-insured market, Mr. Thompson said he expects insurers will continue that tradition.
“Things like wellness, disease management and utilization review all started on the self-insured side of the business,” Mr. Thompson said. “The carriers that are committed to self-insured employers will continue to innovate and be the test pilots of these quality improvement programs.”