Monday, October 25, 2010

NAIC Sends Medical Loss Ratio Recommendations To HHS

On October 21, the National Association of Insurance Commissioners (NAIC) voted to adopt a model regulation containing the definitions and methodologies for calculating medical loss ratios as required by the Patient Protection and Affordable Care Act (ACA).

In a prepared statement, Kathleen Sebelius, HHS Secretary, said regulations based on the model would be published quickly: "The next step is for the HHS to issue a medical loss ratio regulation that will provide clear guidance to stakeholders in the coming weeks.

"We will work quickly to promulgate this regulation, using the NAIC recommendations as a basis, because we believe these new policies will help ensure not only cost savings but higher quality care for consumers. We look forward to working closely with NAIC throughout the process."


On October 14, the NAIC Health Insurance and Managed Care Committee approved a draft regulation, and that draft "passed with only technical amendments" on October 21, according to NAIC.

The ACA required the NAIC, by Dec. 31, 2010, to establish uniform definitions and standardized methodologies for calculating medical loss ratios (Public Health Service Act Sec. 2718). Under the regulation, the "numerator used to determine the medical loss ratio for the plan year is calculated as incurred claims plus any expenses to improve quality." The denominator is calculated as earned premiums less federal and state taxes and licensing or regulatory fees. Thus, the more expenses used for improving quality the higher the loss ratio and the easier it will be to meet minimum standards.

Under the ACA, starting in 2011, a minimum loss ratio of 80% is prescribed for insurance sold to individuals and small employer plans, and a minimum of 85% is required for large-plans (plans with 101 or more employees).

Attempts to limit the amount of insurance sales commissions in the denominator were unsuccessful; for now, these commissions would be included in administrative expenses and will go toward reducing the medical loss ratio. The NAIC reportedly has created a subgroup to work with the HHS to determine the exact relationship between commissions and the medical loss ratio.

The October 14 model regulation also included "credibility adjustments" for small insurers, which would allow as much as an 8.3% addition to the medical loss ratio for insurers with between 1,000 and 2,499 lives. The adjustment would be reduced for larger insurers and would be eliminated for insurers with 75,000 or more lives.

Quality Improvement Expenses

The NAIC October 14 model defined quality improvement expenses as follows:

"Quality improvement expenses are expenses, other than those billed or allocated by a provider for care delivery (i.e., clinical or claims costs), for all plan activities that are designed to improve health care quality and increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements."

NAIC also stated that quality improvement expenses "should be grounded in evidence-based medicine, widely accepted best clinical practices, or criteria issued by recognized professional medical societies, accreditation bodies, government agencies, or other nationally recognized health care quality organizations. They should not be designed primarily to control or contain cost, although they may have cost reducing or cost neutral benefits as long as the primary focus is to improve quality."

Quality improvement activities should be designed to achieve the following goals:

  • improve health outcomes;
  • prevent hospital readmissions;
  • improve patient safety and reduce medical errors, lower infection, and mortality rates;
  • increase wellness and promote health activities; or
  • enhance the use of health care data to improve quality, transparency, and outcomes.

Included Quality Improvement Activities

The NAIC listed the following as categories of activities that would "improve health outcomes" (and thus can be used as quality improvement expenses):

  • Patient centered intervention such as:
    • Making/verifying appointments;
    • Medication and care compliance initiatives;
    • Arranging and managing transitions from one setting to another (such as hospital discharge to home or to a rehabilitation center);
    • Programs to support shared decision making with patients, their families and the patient's representatives; and
    • Reminding insured of physician appointment, lab tests or other appropriate contact with specific providers;

  • Incorporating feedback from the insured to effectively monitor compliance;
  • Providing coaching or other support to encourage compliance with evidence based medicine;
  • Activities to identify and encourage evidence based medicine; and
  • Use of the medical homes model (ACA Sec. 1311).

Excluded From Quality Improvement

The NAIC also identified the following to be excluded as quality improvement expenses:

  • All retrospective and concurrent utilization review;
  • Fraud prevention activities;
  • The cost of developing and executing provider contracts and fees associated with establishing or managing a provider network;
  • Provider credentialing;
  • Marketing expenses;
  • Most accreditation fees; and
  • Costs associated with calculating and administering individual enrollee or employee incentives.

Reaction From AHIP

America's Health Insurance Plans (AHIP)president and CEO Karen Ignagni released the following statement on the NAIC-approved medical loss ratio proposal: "The current medical loss ratio proposal will reduce competition, disrupt coverage, and threaten patients' access to health plans' quality improvement services."

Earlier in October, AHIP sent aletter to the NAIC which included the following comments:

"On the central question of whether the medical loss ratio regulation will advance the health reform goals of improving access to insurance, minimizing disruption for consumers and employers, and improving quality of care, we are concerned that the current draft proposal will create unintended consequences and not achieve the expected goals."

"To promote access to a wide range of health plan choices for consumers and employers, the new medical loss ratio requirements should include adequate adjustments that take into account the statistical variability and credibility of small blocks of covered lives in an environment where extremely high cost, but low frequency claims (such as several complicated transplants or neonatology claims) can create major volatility.... NAIC can address these serious concerns by strengthening the credibility adjuster to avoid potential insolvencies and support competition.

"To ensure that individual patients receive the best care based on the latest available evidence, the NAIC's definition of 'activities that improve health care quality' should be structured to ensure that current and future patients have access to the most up-to-date and innovative support programs and tools that health plans are able to develop. Defining health care quality initiatives in a way that is too narrow or static will turn back the clock on progress and create new barriers to investment in the many activities that health plans have implemented to improve health care quality. More specifically, we want to highlight our recommendations for modifying the definition of health care quality initiatives to include fraud prevention and detection programs and the initial startup costs associated with implementing the new ICD-10 coding system."

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