On October 14, 2010, the National Association of Insurance Commissioners (NAIC) Health Insurance and Managed Care Committee approved model regulations relating to insurer calculation of medical loss ratio (MLR) for health coverages as required under the Patient Protection and Affordable Care Act (PPACA). [UPDATE: On October 21, Executive and Plenary committees of the National Association of Insurance Commissioners (NAIC) voted to adopt the model regulations.] This follows on the NAIC’s August release of a model form for insurer reporting of MLR financial information.

Starting in 2011, the MLR provisions of PPACA will require insurers to spend a certain percentage – generally 80% -- of total premium revenue as reimbursement for clinical services and for activities designed to improve health care quality. These requirements are highly controversial, and several states have submitted requests for a delay in implementation. PPACA grants the NAIC significant authority in establishing uniform definitions and methodologies for calculating MLR.

In an open letter to HHS Secretary Sebelius, the NAIC bluntly raised several issues for HHS to consider as it develops final rules for implementing MLR requirements and rebate obligations. Among the concerns the NAIC raised are:

  • Overly stringent application of MLR requirements could threaten insurer solvency.
  • Some state insurance regulators are evaluating whether prompt implementation of MLR requirements would “destabilize” health insurance markets and impair consumer choices.
  • HHS should promptly consider transitional exemption requests, as many insurers may not be in a position to successfully meet MLR requirements by 2011.
  • HHS should consider exempting application of MLR requirements to expatriate policies.
  • HHS should provide more guidance with respect to MLR rebate requirements.

Further actions by the NAIC and some leading state regulators to provide guidance or influence HHS rulemaking and policy are anticipated. The extent to which concerns and proposals by the NAIC, regulators, health insurers or others will be addressed in final regulations that HHS adopts remains to be seen. However, the NAIC has raised significant and legitimate concerns regarding possible unintended consequences of the new MLR requirements.