Paying for Care, Not Overhead

 HHS Rejects Texas MLR Request  

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 Tex Med. 2012;108(4):37-39.

 By Ken Ortolon 
Senior Editor 

Health insurance plans that write individual and small-group coverage in Texas will not get a reprieve from Affordable Care Act (ACA) requirements that they spend at least 80 percent of their premiums dollars on actual medical care and improving health care quality. 

That means health plans' policyholders in Texas small-group and individual insurance markets could see rebate checks land in their mailboxes as early as August. 

The U.S. Department of Health and Human Services (HHS) turned down a request from the Texas Department of Insurance (TDI) to adjust the new medical loss ratio (MLR) standards to allow Texas small-group and individual plans to phase in the requirement over the next three years. 

TDI argued having to meet the 80-percent standard likely would drive some insurers out of Texas and make it difficult for individuals and small groups to find coverage. HHS, however, found no likelihood the new standard would destabilize the Texas insurance market. Consumer advocates say the requested adjustment could have cost Texas consumers up to $260 million in rebates in 2011, 2012, and 2013. 

The Texas Medical Association did not weigh in on TDI's adjustment request, but the new MLR standards ACA set for individual and small-group plans, as well as large-group plans, are similar to legislation TMA proposed on the state level during the 2009 legislative session. 

TMA did weigh in during HHS' rulemaking on standardizing the definition of MLRs, applauding HHS for taking a number of TMA recommendations on what expenses to include in the MLR calculation. This will prevent health plans from including or reclassifying largely administrative expenses or value-added services that have little to do with actual provision of medical care. 

Plano family physician Christopher Crow, MD, chair of TMA's Council on Socioeconomics, says the HHS rules standardize the definition of MLR for all plans, giving consumers an important tool to compare various plans. 

"If you have the same definition for everybody, then you can compare the performance of plans just like you can compare the gasoline mileage of cars," Dr. Crow said. 

 Setting the Loss 

ACA requires small-group and individual health plans to maintain an MLR of 80 percent, while large-group plans must maintain 85 percent. That means the plans must spend at least 80 or 85 cents of every premium dollar on medical care, as defined under the HHS rules. The remaining 15 to 20 cents could go for administrative costs, overhead, and profits. 

Plans that fail to meet those standards must pay rebates to their policyholders equal to the difference between their actual MLR and the applicable standard. 

In July 2011, TDI submitted a waiver request asking HHS to lower the MLR standard for small-group and individual plans in Texas beginning in 2011. ACA gives HHS the authority to grant such adjustments if there is a reasonable likelihood that application of the standard would destabilize the market in a state. 

At press time, 17 states and Guam sought requests for waivers from the MLR rules. HHS had granted waivers for six states and denied eight others, including Texas. Two waiver requests were still pending. 

Under the TDI proposal, the ACA MLR standard for Texas insurers would have dropped to 71 percent for 2011, 74 percent for 2012, and 77 percent for 2013. Insurers would have had to meet the 80 percent standard for the first time in 2014. 

In his request, then-Commissioner of Insurance Mike Geeslin said the immediate implementation of the 80 percent MLR standard "is likely to stifle competition in the market and constrain many Texans' access to coverage." 

A TDI analysis showed that only seven of 26 carriers subject to the 80-percent MLR requirement would have met it in 2010. Had the requirement been in place that year, premium refunds would have totaled $158.1 million, virtually eliminating the underwriting profits of the entire market, Commissioner Geeslin wrote. 

He added that only two of the eight largest carriers in the individual and small-group markets achieved the 80-percent standard. 

"The results of the department's analysis of the impact of the MLR requirement indicate that the majority of carriers, regardless of size, could be forced to make irrational changes in their operations, creating pricing and availability disruptions," he said. "It is also likely that a number of carriers would exit the market, choosing instead to focus on select products and states." 

The loss of those carriers, he wrote, would decrease availability of coverage options in Texas and cut competition that is vital to ensuring quality and value of individual and small-group coverage. 

 Where's the Value? 

But TMA officials do not believe any plans are likely to exit the Texas health insurance market solely based on the MLR standards. "I can't imagine that one driver of a few percentage points is enough to move them out of the market," Dr. Crow said. "If they're not competitive on that, then they're probably not competitive in other areas." 

Patricia Kolodzey, associate director of TMA's Legislative Affairs Department, questions whether there is any value in keeping health plans in the Texas market that cannot or will not meet the MLR standards. 

"If they're not offering a worthwhile product, why would we want to encourage or make allowances for them to stay in the state?" she asked. 

Consumer and health care advocates also question the validity of TDI's analysis. In written comments to HHS, a coalition of groups led by the Center for Public Policy Priorities said only two carriers indicated they plan to exit small-group and individual markets in Texas. Those carriers represent less than 1 percent of the more than 700,000 Texans who get their coverage through small-group and individual plans. 

The top eight carriers in the state, representing about 90 percent of the market, plan to remain in operation in Texas, said the coalition, which also included the Alamo Breast Cancer Foundation, the Children's Defense Fund of Texas, Gateway to Care, La Fe Policy Research and Education Center, Legacy Community Health Services, Methodist Healthcare Ministries, the Texas Chapter of National Association of Social Workers, Texans Care for Children, Texas Impact, and the Texas Public Interest Research Group. 

Those groups also suggest the size of potential rebates may be considerably less than TDI's estimate because the carriers have had nearly two years to prepare for the MLR standards. 

"Estimated rebates are based on 2010 experience, before health plans had the incentive and opportunity to reduce administrative costs in response to MLR standards," the coalition wrote. "Since the passage of ACA in March 2010, carriers have had time to begin adjusting their business models so they can avoid rebates or pay any necessary rebates and remain profitable." 

And officials of at least one major Texas health plan -- the Scott and White Health Plan -- say there should be no adverse impact on plans that already provide their beneficiaries with value. 

"The good plans shouldn't have a problem," said former TMA and American Medical Association President Jim Rohack, MD, director of the Scott and White Center for Health Care Policy. "The plans that have been underpaying doctors and having a lot of administrative cost because of inefficiencies or big salaries would be the ones that would be having more challenges. By not granting the waiver, HHS basically is saying there are enough good plans left within Texas that it should not create a problem." 

Dr. Rohack says Scott and White Health Plan operates with an MLR consistently above 85 percent. 

Officials at the Texas Association of Health Plans did not return calls for comment on this issue. 

 Cutting Manipulation 

While HHS' decision on the TDI waiver request means policyholders will see more of the premium dollars spent on health care, TMA officials say HHS' decision on the final definition of MLR likely will be equally, if not more, important for consumers. 

Lee Spangler, JD, TMA's vice president for medical economics, applauded HHS' decision to adopt a single MLR definition for all plans and to exclude a number of administrative expenses that health plans sought to include in that definition. 

Plans unsuccessfully had sought to include cost containment, utilization review, fraud prevention, and other costs in the MLR definition. 

"An insurance policy is about paying based upon a promise that when a [covered] event occurs, the plan will issue a check to the covered person," Mr. Spangler said. "That is the function of insurance, and that is the payment that the MLR is measuring." 

 Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at 

 All articles in Texas Medicine that mention Texas Medical Association's stance on state legislation are defined as "legislative advertising," according to Texas Govt. Code Ann. §305.027. That law requires disclosure of the name and address of the person who contracts with the printer to publish the legislative advertising in Texas Medicine: Louis J. Goodman, PhD, Executive Vice President, TMA, 401 W. 15th St., Austin, TX 78701. 

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