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State Regulators Recommend New Health Insurance Rules

By Julie Appleby
Kaiser Health News

Insurance regulators unanimously approved controversial rules Thursday governing how much insurers must spend on patients’ medical care – without adopting any of several last-minute amendments some consumer advocates had feared would gut key provisions.

The recommendations will now go to Health and Human Services Secretary Kathleen Sebelius, who has final say.

Leaders of the National Association of Insurance Commissioners voted after months of meetings and debate involving industry and consumer representatives. The rules center on the “medical loss ratio,” which is how much insurers spend on medical care versus administration and profit. The health overhaul law approved by Congress in March requires insurers to spend at least 80 percent of revenue on direct medical care, starting next year, or issue rebates to consumers if they fail to hit the target.

During the debate leading to the recommendations, insurers pushed for the broadest possible definition of what constitutes medical spending, while consumer groups pushed for a more narrow definition. The final recommendations allow insurers to include many quality improvement costs, along with payments to doctors, nurses, hospitals and other providers in their medical expense calculations, for example, but not commissions paid to insurance sales agents or costs of fraud control efforts. Insurers will be able to deduct federal and state taxes, but not taxes they pay on investment income.

Three contentious last-minute amendments failed to pass. One would have allowed insurers to deduct broker commissions, another would have allowed them to average their medical spending nationwide, rather than state-by-state, and the third would have loosened a complex “credibility adjustment” formula to allow many insurers, particularly smaller ones, to hit the medical spending targets, even if they don’t spend 80 percent on medical care.

“It’s a good day for consumers,” says NAIC consumer representative Timothy Jost, a law professor Washington and Lee University school of law. “I think insurers won some and we won some. On the whole, the main point is the rules are faithful to the law. “
Still, he doesn’t expect consumers will see many rebates because insurers will find ways to become more efficient and their medical spending targets. “They’re also going to have to be more transparent and tell people how much they are spending on administrative expenses and profits,” Jost says.

But some fear the new rules could also stifle competition, in that it will be easier for larger insurers to meet the requirements than smaller ones.

“It will only lead to more market concentration,” says Robert Laszewski, who runs the consulting firm Health Policy and Strategy Associates in Virginia. “I don’t think consumers will see many rebates out of this because the market will reshuffle itself in the next year and we’ll only have left the biggest players to have the ability to comply.”

This article originally appeared on Kaiser Health News and is reprinted with permission.

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