On October 27, 2010, the National Association of Insurance Commissioners (NAIC), an organization of state insurance commissioners, issued their Medical Loss Ratio Regulation (MLR Regulation) as required by the Patient Protection and Affordable Care Act (PPACA). The MLR Regulation had been unanimously approved on October 21.

Section 1001 of PPACA amended Section 2718 of the Public Health Service Act to require NAIC to adopt uniform definitions and standardized methodologies to calculate the medical loss ratios of health insurers in the individual, small group and large group markets. Under that same section, health insurers are required to pay rebates to their insureds if their medical loss ratio is less than the minimum established by PPACA (80% for the individual and small group markets, 85% for the large group market). Under PPACA, the medical loss ratio is the ratio of premiums expended on reimbursement for clinical services plus expenditures on the improvement of health care quality and total premium revenue minus taxes and fees. The purpose of the MLR Regulation was to define these categories and devise methodologies to calculate expenditures in each category.

In a letter to HHS Secretary Kathleen Sebelius accompanying the MLR Regulation, NAIC stated that the insurance commissioners “continue to have concerns about…unintended consequences” as a result of the regulation. Chief among these concerns was the potential for undermining insurer solvency and limiting consumer choice if insurers choose to leave the market. For this reason, NAIC requested that HHS give deference to state regulators in applying the medical loss ratio requirements. In addition, NAIC reiterated its concern that insurance agents and brokers would have difficulty assisting consumers in an environment of rapid change in the insurance market.

The MLR Regulation becomes effective on January 1, 2011. The full regulation is available by clicking here.