HCR Update: Rate Review; Pre-existing Conditions; MLR

The latest Health Care Reform Update is brought to you thanks to our partners at UBA:


Health Reform's Rate Review Begins; Final Rule Is Amended
The Center for Consumer Information and Insurance Oversight (CCIIO) has amended a final rule regarding the rate review program required by the Patient Protection and Affordable Care Act (PPACA). On Sept. 1, 2011, state-federal review of health insurance rate increases began under the final rule, and health insurers seeking to increase their rates by 10 percent or more must submit their request to state or federal reviewers to determine whether they are reasonable or not.

The amendment to the May 2011 final rule amends the definitions of individual and small group markets (the effective date of the amendment is Nov. 1, 2011), as follows:

• The definition of small group market includes coverage that would be regulated as small group market coverage if it were not sold through an association.
• The definition of individual market also includes coverage that would be regulated as individual market coverage if it were not sold through an association.
• This approach follows the definition under which an association itself will only be considered to be a group health plan if it complies with and is regulated under ERISA.

Most reviews will be conducted by the individual states, but in six states (Alabama, Arizona, Louisiana, Missouri, Montana and Wyoming) the Department of Health and Human Services (HHS) will conduct all of the reviews and in two more, (Pennsylvania and Virginia) the federal government will review group market rates.

However, it is possible that with the extension of the rate review provisions to association health plans, the federal government's authority in rate review may grow even stronger. HHS now needs to certify which states it feels are competent to review AHP plan rates. Even if a state has been deemed to have a sufficient review process for traditional individual and group products, it still may not pass muster concerning association plans. The AHP provisions of the rate review requirements begin on Nov. 1, so HHS has until then to determine who will be the ultimate authority on their pricing.

Another New GAO Report Highlights the Slow Start of the Federal Pre-existing Condition Insurance Plan
The General Accounting Office (GAO) released a report last week on the Federal Pre-existing Condition Insurance Plan (PCIP) that analyzes the program to-date and breaks down data by state. It includes enrollment information, cost-sharing breakdowns, premium prices and eligibility criteria.

When PPACA was being developed, the Congressional Budget Office estimated that it could serve up to 5 million Americans between 2010 and 2014. As of April 30, 2011, actual enrollment totaled 21,500 (about 15,800 in the state-run PCIPs and about 5,700 in the federally run PCIP). Due to the low enrollment numbers (0.43 percent of the number expected), only about 2 percent of the $5 billion allotted for PCIP has been spent so far.

The full report can be found at: http://www.gao.gov/new.items/d11662.pdf.

Average Medical Loss Ratios Exceeded Health Reform Standards
From 2006 through 2009, traditional medical loss ratios (MLRs) in the small group and large employer markets on average generally exceeded the loss ratio standards established under the Patient Protection and Affordable Care Act (PPACA) standards. According to a recent report from the General Accountability Office, these results came even without the additional components in the PPACA that generally will increase MLRs.

The loss ratio formula specified in PPACA differs from the way MLRs have traditionally been defined.

• The traditional MLR is generally calculated by dividing an insurer's medical care claims by premiums.
• In the PPACA MLR formula, the numerator includes insurers expenses for activities that improve health care quality such as patient-centered education and counseling, care coordination, and wellness assessments in addition to claims.
• Further, the denominator of the PPACA MLR subtracts from insurers premiums all federal taxes and state taxes and licensing or regulatory fees.

Under the PPACA, if minimum loss ratio standards are not maintained, rebates must be provided to health plan participants. From 2006 through 2009, insurers traditional MLR averages generally exceeded the PPACA MLR standards: 80 percent for the small group markets and 85 percent for the large group market (see table below).

Average Traditional MLRs by Market for Insurers, 2006-2009

         Small group market        Large group market

Year      (N)       Mean             (N)      Mean

2006      281      79.5%           316      84.9%

2007      290       81.0              319      87.3

2008      287       80.6              311      87.3

2009      312       83.1               340     88.8

The average traditional MLRs reported for 2006 through 2009 were also relatively stable. Since traditional MLRs were calculated differently than they will be under the PPACA requirements, it is difficult to predict, based on these data, what insurers MLRs would have been using the PPACA formula, or to predict the MLRs that insurers will report in the future, according to the GAO.

The report, "Private Health Insurance: Early Experiences Implementing New Medical Loss Ratio Requirements," is available at: http://www.gao.gov/products/GAO-11-711.