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Effect of minimum loss ratio regulations

by Tony Novak, CPA, MBA, MT, NAHU certified consumer driven health care consultant, last revised 7/21/2011


The minimum loss ratio regulation becomes effective for U.S. health plans on January 1, 2011. A 60 day public comment period for the regulations begin at the same time before the rules are finalized. The federal regulations may be modified by individual states and already a number of states have chosen to make changes. Since most health insurance regulation takes place at the state level, and considering that there is plenty of motivation for state legislators to action, we expect more modifications will follow. A copy of the federal regulation is now available online and in PDF format. Although Department of Health and Human Services press releases indicate otherwise, we see no indication that the MLR regulations will have any noticeable effect on health insurance consumers.

Premium Rebates - HHS regulations contain provisions for consumer rebates beginning in 2012. Most industry experts do not think that rebates will substantially materialize. The HHS agency's press release goes as far as estimating the amount of an average 2012 rebate. Health insurance companies have not indicated any difficulty meeting the requirements and thereby avoiding premium rebates. Consumer Watchdog group voiced concern that the regulations that allow insurers to deduct federal and state taxes from their premium revenue and allow public health marketing campaigns to count as health quality improvements mean that insurers will not change underlying benefit or pricing practices. We believe that Consumer Watchdog is correct and that HHS's prediction of premium rebates is potentially misleading to consumers who buy health insurance in 2011. Consumers who purchase health insurance should not expect a premium rebate based on the MLR regulation.

Agent Commissions - HHS and the White House have joined the National Association of Insurance Commissioners and insurance agent groups in support of exempting agent commissions from the MLR rules. Agent services are more important than ever before and we anticipate Congressional action on this issue in 2011. Meanwhile, some insurance companies have already reduced agent compensation in reaction to the MLR regulation as it currently exists. There is valid concern that agents will reduce efforts to promote and enroll member in those health plans with reduced or eliminate their compensation. It is unclear as to how this will affect availability of some health insurance at the retail level however we logically predict that those health plans that reduce commissions will suffer a drop in market share - at least in comparison to results that would have been obtained without change to agent compensation.

By July 2011 it seemed clear that the federal regulating authorities are now in favor of exempting agent commissions from the minimum loss ration calculations in recognition of the greater anticipated role of brokers in the post-reform market. This reverses several earlier positions.

Health Plan Exemptions - HHS granted one year exemptions to many insurance plans that did not meet the requirement and the exemption process is likely to continue ever several months. Supplemental health insurance is automatically exempt.

Loss ratio reporting - In the past, claims payment information was collected by each state insurance department and compiled for publication by the National Association of Insurance Commissioners (NAIC). Beginning next year, the federal government will also collect this information for eventual publication.

The regulation is likely to be modified in 2011 and we anticipate updating this article in response to those changes as they may occur.

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This web site is independently owned and managed by Tony Novak operating under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator". Opinions expressed are the sole responsibility of the author and do not represent the opinion of any other person, company or entity mentioned. Tony Novak is not an agent, broker, producer or navigator for any federal or state health insurance exchange but may provide uncompensated advice, reviews and referrals to these official resources. Novak is compensated as an accountant, adviser, affiliate consultant, marketer, reviewer, endorser, producer, lead generator or referrer to some of the other commercial companies listed on this site. Information is from sources believed to be reliable but cannot be guaranteed.