Wednesday, August 25, 2010

Medical Loss Ratio and Public Health: Questions Linger

Should insurance companies be able to get off the hook for paying rebates to customers, who may believe their company is unfairly denying them specific medical care in order to save money, by virtue of engaging in health promotion campaigns?

Last week the National Association of Insurance Commissioners issued proposed rules for measuring the Medical Loss Ratio (MLR), a key instrument for controlling health insurance premiums. The MLR is the 80-85% of premiums that the new health care reform law requires insurance companies to spend on medical care, or improvements to the quality of care, as opposed to administration. Companies that fail to meet that test must give suscribers a rebate. The usually out-gunned consumer representatives at the NAIC supported the state insurance commissioners' vote to adopt the proposed rules unanimously, claiming a victory against insurance industry lobbyists.

But a key provision that slipped through threatens both the effectiveness of the MLR, and the integrity of public health departments. The U.S. Department of Health and Human Services (HHS) is backing a late amendment that would allow insurance companies to count their collaborations with public health departments as quality improvements.

What this means: Partnerships between private, for-profit health insurance companies and cash-strapped public health departments would be counted as part of the expenditures of your premium dollars to improve your health.

The key question is this: Should insurance companies be able to get off the hook for paying rebates to customers, who may believe their company is unfairly denying them specific medical care in order to save money, by virtue of engaging in health promotion campaigns?

Even assuming you like the idea of entrusting health promotion campaigns to your health insurance company, is the MLR a remotely suitable mechanism for encouraging them to engage in these canpaigns?

This is a classic mismatch of policy priorities. The MLR is meant to compel your insurance company to direct your premiums to pay for your health care. If your premium dollars are going to programs that benefit any non-subscriber. it shouldn't count against your right to a rebate. On the other hand, public health departments are meant to use your tax dollars to improve the health of your community. There are simply no grounds to divert public health department efforts to serve subscibers to a particular health plan.

There aren't a lot of these partnerships now - at least not legitimate ones. Most often they take the form of marketing campaigns that happen to focus on public health issues such as smoking cessation. If this rule stands, we can likely look forward to increasing insurance industry incursions into public health territory. So what? At least 3 things: 1. Premium dollars will be further frittered away on marketing campaigns re-dubbed as "health awareness." 2. Real public health department initiatives, and funding for same, will be undermined as already scarce public health staff are diverted to determining whether particular insurance company campaigns are legitimate or not. 3. Smoking cessation campaigns, for exanple, can help insurance companies identify and then cherry-pick customers, either excluding smokers from coverage, or charging them more (the excess charges remain legal even after new rules take effect in 2014).

Interestingly, the insurance industry is also lobbying not to count investment income, or the taxes they pay on investment income, as, well, income, for purposes of calclating the MLR. Those are the taxes that they should be paying to support our state and local health departments.

HHS has to "certify" the NAIC's recommendations before they take effect. The EQUAL Health Network says this one should get a recall.

Background online:

Thursday, August 12, 2010

Insurance co.s want to make you healthy! They also have a bridge for sale

The still-fragile Affordable Care Act (ACA) gives the public a fighting chance at reining in health insurance premiums. But we’re going to have to wrestle with the insurance industry every step of the way. As the National Association of Insurance Commissioners (NAIC) convenes in Seattle today, the public has the imperative to stick up for ourselves. Here’s what’s at stake in this round.

Starting in September, health insurance plans are required to spend at least 80-85% of the premium we pay them on actual health care. Executive bonuses, administration, marketing and profits are limited to the other 15% (in large plans) to 20% (in small plans). This is supposed to incentivize the insurance industry to operate efficiently and to negotiate assertively with health care providers. rather than simply passing on cost increases to consumers.

The $2.5 trillion dollar question is this: how do you define actual health care? The Secretary of Health and Human Services defines this figure, known as the Medical Loss Ratio (MLR), after consulting with the NAIC. And the insurance industry has not been shy.

The insurance industry is asking the NAIC to define the MLR to its advantage, by counting marketing programs, including those with public health themes, as medical expenses, rather than the administrative expenses they clearly are.

The aims of the relevant section of the law (Sec. 2718) - low cost care that offers value to consumers – conflict with the financial imperatives of the health insurance industry, to maximize profits and returns to shareholders, as well as administration, including executive compensation. Proposals by the insurance industry call for calculating the MLR in a way that will frustrate the aims of the law. The MLR is a ratio, with all medical claims (in the numerator), divided by total premiums (in the denominator). A high MLR means that the insurance company is spending a relatively higher share of premium income on its members' medical care and less for administration and profit. A low MLR means that the insurance company is returning less in medical care benefits to its members while retaining more for executives and shareholders; this can also signal a solid opportunity for investors.

To fairly achieve an 85% MLR, a company would have to show that the amount spent on medical claims (in the numerator) is high relative to premiums. But companies can frustrate the intent of the law by defining medical claims to include other expenses, including expenses typically considered part of administration.

The Senate Commerce Committee has documented that, "At least one company, WellPoint, has already ‘reclassified’ more than half a billion dollars of administrative expenses as medical expenses, and a leading industry analyst recently released a report explaining how the new law gives for-profit insurers a powerful new incentive to ‘MLR shift’ their previously identified administrative expenses."

The ACA standard for including expenditures for non-clinical care as a medical expense (that is, in the numerator) is that it must "improve health care quality." It’s hard to imagine this test will be met by the few occasions of insurance companies’ co-sponsoring visible public health events, nor do they justify skewing the MLR in ways that would raise premiums, or requiring the additional administrative effort to determine whether or not it is in itself an administrative or medical expense.

In our letter to the HHS and NAIC, the EQUAL Health Network urged, "The NAIC and HHS should discourage efforts by insurance companies to create and benefit from insubstantial programs that masquerade as clinical treatments. These programs should be properly counted as the administrative expenses that they are. Otherwise, a proliferation of such programs, if regarded as clinical care, would have the exact opposite of the intended effect of the measure: it would cause health care expenditures to balloon, and dilute value for consumers."

What About Their Investments?

The ACA standard applies only to insurers' premium revenues. Yet patients and payors should be equally concerned about how an insurer uses income from its investment of the sums it extracted from previous years’ patient premiums. A more appropriate standard would measure the share of insurers' total revenues devoted to care, as some analysts have urged.

NAIC committees have been working largely outside of the public’s view to draft standards. In our letter, the EQUAL Health Network urged, "It is vital that rate review and other pressures be strong enough to prevent insurers from simply raising premiums in order to offset the limit on their administration/profit share. It will also be important to create an ongoing public process to set and review the initial regulations which are required to begin in September, 2010. Public comment on this system's achievements and limitations will provide assessments of the system's success, and offer the groundwork for constructive and equitable adjustments to the rules."