CMS Issues Final Medical Loss Ratio Rule

The Centers for Medicare & Medicaid Services (CMS) issued a final regulation that will ensure health insurance companies spend at least 80 percent of consumers’ health insurance premiums on medical care, not income, overhead and marketing. Insurance companies that fail to meet the new standard are required to provide a rebate to consumers.

Known as the Medical Loss Ratio (MLR), this rule provides unprecedented transparency and accountability of health insurance companies for customers. Created by the Affordable Care Act, the MLR requirements provide protection and value to approximately 74.8 million insured Americans. Estimates from last year indicate that, starting in 2012, up to nine million Americans could receive rebates worth from $0.6 to $1.4 billion. However, early reports suggest insurers lowered premium growth rather than face the prospect of providing rebates – a win-win for consumers.

“Under the Affordable Care Act, consumers are already seeing better value from their health insurance companies,” said CMS Acting Administrator Marilyn Tavenner. “If your insurance company doesn’t spend enough of your premium dollars on medical care or quality improvement this year, they’ll have to give you rebates next year. This will bring costs down and give insurance companies the incentive to focus on what matters for patients – high quality health care.”

MLR rules took effect on January 1, 2011 but the final rule makes modifications and provides certainty to how the MLR is calculated. These modifications are based on public comments solicited in an earlier version of the rule published by CMS in the spring.

The modifications made in the new rule:
- Make the MLR rebate tax free: Rather than having insurers send checks that could be taxed, workers in group health plans can receive rebates in a way that is not taxable.
- Increase transparency: Consistent with comments from consumer groups, the new regulation proposes that all consumers receive a notice, showing not just the amount of any rebate, but what the insurer’s MLR means regardless of whether there is a rebate, and how the insurer’s MLR has improved under the new law. In addition, data on the special types of plans, mini-meds and ex-patriate plans, will be publicly posted in the Spring.
- Keep strong policies on how MLR is calculated: The final rule makes only a minor change to a quality improvement definition to promote insurer improvements in defining or coding of medical conditions for a limited window of time.
- Phase down the special circumstances adjustment for mini-med plans: In 2011, so-called mini-med plans received a special circumstances adjustment to their MLR in the form of a multiplier of 2.0 for 2011. The final rule phases it down from 1.75 in 2012 to 1.5 in 2013 to 1.25 in 2014. Mini-med plans will be banned by the prohibition on annual limits in the Affordable Care Act starting in 2014.
- Recognize circumstances of special types of plans: The final rule, after reviewing data, keeps the ex-patriate plan multiplier adjustment at 2.0 due to their unique structure. It also levels the playing field between non-profit and for-profit insurers in states with premium taxes.

For more information on the final rule, visit:
http://cciio.cms.gov/resources/factsheets/mlrfinalrule.html

Source: CMS News Release