WASHINGTON, DC – Gov. Scott Walker's administration is seeking an exemption from a new health care law requirement that could mean millions of dollars in rebates to Wisconsin consumers.
Under the health care reform law enacted in March 2010, insurers would be required to devote 80 percent of premium dollars to medical treatment instead of profits and administrative costs, including marketing and salaries.
President Barack Obama's administration says the minimum spending requirement, called a medical loss ratio, would make the market more transparent for consumers who purchase their own insurance and make it easier for them to select a plan that gives them the best value for their money.
Those insurers who fail to meet the 80 percent minimum would have to provide rebates to their customers. As many as nine million Americans could be eligible for up to $1.4 billion in rebates next year, according to Obama administration estimates.
But Wisconsin and 16 other states and Guam contend such a threshold could create a severe disruption in their health insurance markets, leaving consumers in the lurch. They are asking the government to modify the requirements to give insurers time to adjust their business practices to comply with the law and remain competitive.
In Wisconsin, six of the 24 insurers that write policies in the individual market fell below the 80 percent minimum, according to 2010 estimates. Those six cover 68,310 consumers, 35 percent of the individual market. Overall, 184,000 Wisconsin residents have individual insurance policies. That represents a small portion of the state's insured population, with 3.1 million getting their coverage through their employers. Under the 80 percent standard, the six insurers would owe rebates totaling $4.4 million.
"We are concerned that if any of these six insurers that represent 35 percent of the health insurance market withdraw or severely curtail their coverage in the state, Wisconsin's competitive health insurance market will be negatively impacted," Insurance Commissioner Theodore Nickel wrote in his application for an adjustment.
In addition, Nickel said, eight other insurers, five of whom met the 80 percent minimum in 2010, are losing money in the individual market and six are experiencing deficits in all areas of business.
Nickel asks that the state be allowed to phase in the required minimum, starting at 71 percent for 2011 and increasing by 3 percentage points each year until the minimum reaches 80 percent. Under the 71 percent standard, Wisconsin consumers would be owed about $62,000 in rebates for 2011.
Without the phase-in, Nickel wrote, insurers would be challenged "to make significant and potentially inappropriate cuts in their expenses. Some will seek quick solutions such as flat or reduced commissions; modified pricing, services or products; and changes in target markets or marketing practices. Others will have no choice but to leave the Wisconsin market altogether."
After reviewing Wisconsin's letter and appendixes, Carmen Balber, Washington director of Consumer Watchdog, said the state fails to justify its request for a phase-in period. Balber said the state's own estimates show nearly all of the individual market insurers in Wisconsin were above the 71 percent minimum in 2010 and some were well above it.
"There is no excuse for a waiver application that would encourage insurance companies to decrease the portion of consumers' premium dollars they spend on health care," Balber said. "Furthermore, companies have been aware of this provision for well over a year. They should have been adjusting business practices to make spending more efficient, and the few Wisconsin insurers that didn't meet the standard last year don't have far to go."
Consumer Watchdog has challenged several waiver applications, including one submitted by Florida. The group called the state's request "the most unjustifiable of all the applications" received by the Department of Health and Human Services.
"If Florida is granted a waiver, any state would qualify," the group said in an Oct. 24 letter to HHS. "You will have eliminated the high bar – serious market disruption – against which waivers should be measured."
Wisconsin submitted its request on Oct. 25. All but three of the 17 states and Guam seeking relief are headed by Republican governors. And all of those led by GOP governors, except North Carolina, are plaintiffs in a lawsuit seeking to strike down the health care law.
The Obama administration has denied the requests of Delaware and North Dakota and approved modified versions for Iowa, Kentucky, Maine, Nevada and New Hampshire.
"We're seeing a pattern of states applying for waivers out of fear that insurers won't be able to comply," Balber said. "But we haven't seen any data that would justify that concern."