The Obama administration has begun the arduous task of implementing the recently passed Patient Protection and Affordable Care Act (PPACA), starting with reforms for the health insurance industry. The Departments of Health and Human Services, Treasury, and Labor (collectively, Departments) jointly issued a request for comments in the April 14, 2010 Federal Register on the definitions and standards to be used in implementing the medical loss ratio (MLR) provisions of the PPACA. The Department of Health and Human Services (HHS) also separately issued a similar request for comments regarding the premium rate review provisions of the PPACA.

In addition to the request for comments, HHS Secretary Kathleen Sebelius issued a separate letter to the NAIC seeking information that the PPACA directs the NAIC to provide. In particular, the PPACA directs the NAIC to establish uniform definitions and standardized methodologies for determining and calculating the services that will constitute clinical services, quality improvement, and/or other non-claims costs for purposes of enforcing the MLR provisions of the PPACA. While the PPACA allows the NAIC until December 31, 2010 to establish these definitions and methodologies, Secretary Sebelius states in her letter that she hopes to publish regulations as soon as possible to allow sufficient time for health insurers to incorporate the resulting changes, given that the MLR provisions are effective for plan years beginning six months after enactment of the PPACA. Therefore, the secretary's letter asks the NAIC to provide the information at issue by June 1, 2010.

Medical Loss Ratio

Under the PPACA, for plan years beginning on or after September 23, 2010 (six months after passage of the PPACA) health insurers must begin submitting a report to HHS for each plan year detailing the MLR for that plan. The MLR is essentially the percentage of revenue from a plan's premiums that is spent on reimbursement for clinical services or other activities that improve the quality of health care. Beginning no later than January 1, 2011, a health insurer offering group or individual coverage must provide an annual pro rata rebate to each enrollee if its MLR is less than 85 percent for plans in the large group market or less than 80 percent for plans in the small group or individual markets.

Through the comment process, the Departments are seeking information on a variety of issues, including:

  • How the new MLR minimums compare to health insurers' current MLRs
  • The definitions and methodologies currently in place to calculate MLRs
  • Current practices at the state level for calculating/reviewing MLRs
  • Definitions for activities that improve health care quality
  • Whether any states require MLR-related rebates similar to the new law
  • Any terms or provisions that require further definition to facilitate compliance with the new law

Comments also are requested for data submission and public reporting such as how states currently require submission of statistics, timing of submission, and any industry standards relating to communication of MLR statistics. The Departments would like comments from all interested parties, but are especially interested in responses from health insurers and states. All comments received will be made public.

Premium Rate Review

Beginning with the 2010 plan year, the PPACA requires the HHS secretary to work with states to establish a process for the annual review and monitoring of “unreasonable” rate increases and to award some $250 million of grant money to states to carry out their review responsibilities in this regard. The process shall include requirements for health insurers to submit to the secretary and the relevant state(s) a justification for any “unreasonable” premium increases prior to the implementation of any such increases and to prominently post such justifications on their Internet sites. The PPACA also requires states, as a condition of receiving any grants from HHS for carrying out their review responsibilities, to make recommendations about whether particular health insurers should be excluded from participation in the insurance exchange(s) created under the PPACA based on a pattern or practice of excessive or unjustified premium increases. HHS seeks feedback regarding issues such as defining an unreasonable rate increase, current state processes for reviewing and approving premium rates and increases, health insurers' justifications for rate increases, and public disclosure issues such as the current availability of information to the public. The comments also ask what kinds of factors should be considered when allocating the $250 million in grant money to states.

All comments received will be made public and were due May 14, 2010.

For your convenience, we have provided links to the applicable Federal Register and to Secretary Sebelius' letter to the NAIC below.

Federal Register Proposed Rules, "Medical Loss Ratios; Request for Comments Regarding Section 2718 of the Public Health Service Act" at http://edocket.access.gpo.gov/2010/pdf/2010-8599.pdf.

Federal Register Proposed Rules, "Premium Review Process; Request for Comments Regarding Section 2794 of the Public Health Service Act" at http://edocket.access.gpo.gov/2010/pdf/2010-8600.pdf

HHS Secretary Sebelius' letter to the NAIC: http://www.healthreform.gov/newsroom/naicletter.html