HHS Final Rules on Medical Loss Ratio Remain Tilted in Insurers’ Favor, Says Consumer Watchdog

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Washington, DC — Federal rules issued today on how much health insurers must spend on health care vs. administration and profit are nearly unchanged from the proposals sent to the Department of Health and Human Services by the National Association of Insurance Commissioners. HHS deserves credit for resisting a lobbyist onslaught demanding more loopholes in the law requiring the industry to spend 80% to 85% of premium dollars on health care, said Consumer Watchdog. But HHS also left intact some of the industry’s chief goals, including over-broad tax deductions and loose definitions of  “health  quality improvements” that will artificially boost the health care ratios (also known as medical loss ratios) of all insurers. This will allow insurers to appear more efficient with less or even no effort on their part.
“The HHS rules are certainly not as bad as they could have been, considering the demands of the health insurance lobbyists who swarmed the agency,” said Judy Dugan, research director of Consumer Watchdog. “But the industry will take every advantage of new tax deductions and the definition of ‘health quality improvements’ that can be counted as health care. HHS will have to focus its measurement and enforcement on these loopholes, and act to correct the regulations to stop abuses.”
On the upside, said Consumer Watchdog, HHS did not allow much broader loopholes that would have obliterated the intent of the minimum medical loss ratio, or MLR, said Consumer Watchdog.
The chief problem areas of the regulations include:
1.    Inclusion of public health marketing campaigns as “health quality improvements.” The NAIC proposal would allow insurance companies to count as health care certain marketing costs—such as anti-tobacco or anti-obesity messages—that are largely intended to improve a corporate image. There is no provable connection between health quality and such marketing campaigns, especially those aimed at a general public by an insurance company. Even in conjunction with a public health agency, insurer’ marketing campaigns do not meet the purpose of the medical loss ratio rule–providing value for premium dollars paid by the insurers’ customers. They may also, and more insidiously, help insurers identify people they do not want to insure—i.e. smokers, obese people or diabetics.

 2.    Excessive tax deductions.  The proposed regulations would allow insurers to deduct almost all federal and state taxes, including income taxes, from their premium revenue before calculating the medical loss ratio. According to a letter sent to the NAIC by the chairs of Congressional committees most closely involved in writing the health reform law, Congress did not intend to allow such broad deductions, despite the rather vague language of the law as passed.

 3.    Lack of transparency for administrative costs counted as “health quality improvements,” including: provider accreditation fees, prospective utilization review and telephone hotlines. Each of these activities is generally considered a cost-reduction, claims adjustment or administrative activity. For example, accreditation fees paid to the insurer-founded National Committee for Quality Assurance include some measures of health quality improvement, but primarily address the quality of a health plan, not of health care. Due to the dubious nature of these expenditures, the regulation requires an insurer to justify counting them as health quality improvements by explaining specifically how they: improve health outcomes, prevent hospital readmissions, improve patient safety, reduce medical errors or promote wellness. However, the explanation will be made in a “regulator only supplemental filing” that won’t allow the public to gauge the legitimacy of insurers’ claims. These expenses are marginally connected to health care to begin with and should be publicly justified. In fact, any explanation provided by insurers as to why an expense was categorized as a health quality improvement should be publicly available.


 4. "Mini-med" plans: In a newly developed regulation, HHS announced a major exception to the MLR rules of so-called "mini-med" health insurance plans, which limit employee benefits to as little as a few thousand dollars a year. Such plans, mostly used in the retail and fast food industries, and for part-time employees, will be allowed minimum health care ratios as low as 40% (as opposed to the 85% level of conventional employee insurance). The exception is currently allowed for one year, and must not be allowed to continue beyond a year. HHS, in the regulations, acknowledged that it had insufficient data about insurer expenses to support this exception.

Industry lobbyists will also continue to push for more loosening of the regulations, which are intended under the health reform law to force insurers to operate more efficiently, and spend at least a minimum amount on health care, said Consumer Watchdog. What the industry failed to get up front, it will try to get by chipping away at regulators over time, said Consumer Watchdog.

 “HHS has a tough job ahead of it, monitoring both the national corporate behavior of the insurance industry and varying levels of enforcement of the MLR regulations in the states,” said Carmen Balber, Washington director for Consumer Watchdog. “Insurer lobbies know that public attention to these rules will fade, and will be waiting to pounce. But the consumer benefit in the regulations is already razor-thin, so HHS cannot give an inch.”

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Consumer Watchdog is a leading nonprofit, nonpartisan consumer advocacy organization. For more information, see

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