State of Indiana Takes on Health Rules

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Seeks exemption for insurance firms

Indiana wants to exempt some of the state's health insurers from having to spend a minimum portion of customers' premiums on medical services — instead of on profits, marketing, salaries and other administrative costs.

If the federal government approves the state's request to waive that new rule included in the 2010 health care overhaul, some Hoosiers won't get the refunds required from insurers who spend less than 80 cents of every $1 collected in premiums on medical care.

If the rule were in place last year, Hoosiers who buy plans on their own would have received almost $24 million in rebates, according to estimates the state included in its waiver application.

The Obama administration says the requirement will make the insurance market more transparent and make it easier for consumers to buy plans that provide better value for their money. As many as 9 million Americans could be eligible next year for rebates worth a combined $1.4 billion, the administration estimates. Average rebates for those who purchase plans on their own could total $164.

The Indiana Department of Insurance is asking for a permanent waiver of the new rule for high-deductible health plans sold to individuals and small groups. The state wants to phase in the rule for all other plans sold on the individual market so the 80 percent minimum wouldn't start until 2015.

If insurers keep their same spending ratios as 2010, the largest chunk of rebates in Indiana — more than $9 million — would be owed by WellPoint/Anthem.

The Indianapolis-based insurance giant, which covers about 60 percent of Hoosiers who buy insurance on their own instead of getting it through an employer, spent about 77 percent of Indiana premiums on medical care last year.

But the company expects to meet the 80 percent minimum for this year.

"Anthem remains committed to the individual market in Indiana and will continue to provide a variety of affordable, market-leading benefit plans that are attractive to consumers," said Tony Felts, spokesman for Anthem Blue Cross and Blue Shield in Indiana.

Anthem, however, supports the state's waiver request "because of our belief that the 80 percent threshold would diminish competition, a scenario that has been borne out as a handful of carriers has left Indiana's individual market in recent months."

Indiana Commissioner of Insurance Stephen W. Robertson wrote in his waiver application that five companies have notified the state that they are withdrawing from the market. But none of the companies cited the new rule as a reason for their withdrawal and one specifically said the new health care law was not the motivation. Guardian Life Insurance Company of America said it would no longer sell individual plans in Indiana because of "our lack of a competitive product" and its decision "is no way related to health care reform."

Consumer Watchdog, an advocacy group, said Indiana's waiver application is based on state politicians' ideological opposition to the federal health care overhaul. Every insurance company that would end up owing customers a rebate under the new rule is operating profitably and insurers are adjusting their business practices to avoid the rebates, said Carmen Balber, the group's Washington director.

"The point wasn't to give people rebates. The point was to make it so they didn't need them in the first place," Balber said in an interview. "Premiums aren't going to be adjusted accordingly if insurance companies just get a free pass from having to meet the new standards."

Indiana is among the states that are challenging the constitutionality of the health care law. Robertson said the Indiana Department of Insurance supports that challenge but is asking for the waivers to do "everything in my power to  protect Hoosiers and the health insurance market from its unintended consequences" if the law stands.

The federal government could decide by next Friday whether to grant Indiana's request. It has denied two states' requests for waivers and approved modified versions of five states' requests. Eight states besides Indiana are waiting for a response.

While the new law requires health insurers to spend at least 80 percent of the premiums they collect from individuals and small groups on medical services, the minimum is 85 percent for policies sold to large groups. The rebates from those who spend less would be sent out starting next year.

The Health and Human Services Department says that more than 20 percent of consumers who buy plans on their own have plans that spend less than 70 percent of premiums on medical claims.

In order to obtain a waiver, states must show that the 80 percent minimum would "destabilize" the individual market and result in fewer choices for consumers. The requirement doesn't apply to plans with less than 1,000 enrollees.

Insurers are already responding to the new rules by reducing commissions paid to brokers and lowering premiums to avoid paying rebates, according to the Government Accountability Office, the investigative arm of Congress. Anthem declined to say what it has done to increase the percentage of premiums spent on medical claims in Indiana.

Because the minimum requirements — known as a medical loss ratio — are based on an insurance company's business in each state, one large insurer told the GAO it will pull out of states where the company doesn't have a large market share or where it could be difficult to meet the new rules.

Indiana officials solicited feedback on the rule in an anonymous survey of 13 issuers. One carrier said the rule is a disincentive to underwrite new policies.

Another said it can't reduce its administrative costs on current policies enough to avoid losing money as the policies were written before the new rules took effect.

Almost 11 percent of Hoosiers under age 65 with private insurance use the high-deductible health plans for which the state is seeking a permanent waiver.

That's the sixth highest percentage among states. More than 70 percent of Indiana's nearly 29,000 state employees have chosen health savings accounts, which combine high-deductible plans with tax-preferred savings accounts.

The state argues that such plans make consumers more cost-conscious so help hold down health care spending without sacrificing care. But Robertson said they shouldn't be treated the same as other plans under the new rules. Because a high-deductible plan requires consumers to pay more of the upfront cost of health care in exchange for lower premiums, that means the insurer is paying out less, making it harder to reach the minimum level an insurer has to spend on medical claims.

Balber said that logic is faulty because the requirement is that a certain percentage of the premium collected go toward health care, not a certain percentage of money that both the insurer and the consumer spends on health care.

"In truth, what they cannot do is meet those standards while maintaining the excessive profits they currently generate for insurers," Balber told the federal government in urging a denial of Indiana's request.

Indiana insurers who could owe rebates:

The 2010 health care overhaul requires insurance plans in the individual market to spend at least 80 percent of the premiums collected on medical services beginning in 2011. This is known as the medical loss ratio ( MLR). Below are the rebates Indiana insurers would owe based on their 2010 spending.

Anthem Insurance Companies Inc.: Covered 114,671 Hoosiers (60 percent of individual market); 76.6 percent estimated MLR; $9.3 million estimated rebates.

Golden Rule Insurance Co.: Covered 17,828 Hoosiers (9 percent of individual market); 66.5 percent estimated MLR; $3.9 million estimated rebates.

Time Insurance Co.: Covered 13,498 Hoosiers (7 percent of individual market); 66.3 percent estimated MLR; $4.1 million estimated rebates.

Mega Life & Health Insurance Co.: Covered 4,571 Hoosiers (2 percent of individual market); 65 percent estimated MLR; $1.5 million estimated rebates.

American Republic Insurance Co.: Covered 1,376 Hoosiers (0.7 percent of individual market); 59.7 percent estimated MLR; $991,902 estimated rebates.

United Healthcare Insurance Co.: Covered 12,179 Hoosiers (6.3 percent of individual market); 54.5 percent estimated MLR; $974,937 estimated rebates.

American Medical Security Life Insurance Co.: Covered 2,551 Hoosiers (1.3 percent of individual market); 64 percent estimated MLR; $903,059 estimated

Humana Insurance Co.: Covered 4,065 Hoosiers (2.1 percent of individual market); 66 percent estimated MLR; $801,726 estimated rebates.

John Alden Life Insurance Co.: Covered 1,684 Hoosiers (0.9 percent of individual market); 63.1 percent estimated MLR; $643,640 estimated rebates.

Mid West National Life Insurance Company of Tennessee: Covered 1,709 Hoosiers (0.9 percent of individual market); 64.4 percent estimated MLR; $521,631 estimated rebates.

(Source: Indiana Department of Insurance)

Contact Maureen Groppe at [email protected]

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