The MLR goes into effect in January 2011. The law requires that large-group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent can go to other items, such as administrative costs, advertising and profits.
For small-group and individual plans, the ratio is 80 percent premiums and 20 percent other costs. If insurers fall short of the standards in 2011, they’ll have to issue rebates for that amount in 2012.
Days before a key and controversial provision of the health-care law is set to take effect, Maine is the only state to have asked the Obama administration for an exemption
Consumer advocates have hailed the new “medical loss ratio” standard as a ground-breaking protection against profiteering by insurers. But the law’s drafters were concerned that it could prove too onerous for plans selling to individuals, whose customer base is less stable and healthy than those of plans serving small and large businesses. So the law permits states to request temporary adjustments of the standard from the Secretary of Health and Human Services.
Until then, Maine has requested that the medical loss ratio required of its individual market plans be lowered to 65 percent. State officials have also asked that the ratio be calculated using the state’s own, potentially more expansive, definition of activities that can be counted as improving customers’ health.
Maine says that companies that sell small-group and individual policies can’t meet the new MLR rule (80% to medical care and 20% to administrative costs), but I’m wondering if this is about protecting commissions to insurance brokers who sell those small-group and individual policies, rather than any concerns about “onerous” regulation:
The law hits brokers on two fronts: First, it sets up online health insurance marketplaces called exchanges. Beginning in 2014, customers in the individual and small group markets will be able to compare and contrast health plans, which will be regulated by government, without the help of a broker.
Second, starting next year, insurers are required to spend at least 80 percent of their premium dollars on direct medical care. To save money, many are considering cutting or eliminating the commissions they pay brokers, which are considered an administrative expense. Some insurers have already started reducing broker fees.
Insurance brokers lobbied heavily to have their commissions excluded from “administrative” cost calculations during the federal rule-writing process, and failed. Maybe they found a sympathetic ear in Maine?