Several major aspects of the medical loss ratio regulation are still under discussion, Brian Webb of the National Association of Insurance Commissioners said Tuesday.

In particular, Webb said, the commissioners are still debating three topics:

- Aggregation: A draft regulation released last week calls for the medical loss ratio to be calculated for each company by state. The large-group health plans want to be able to aggregate nationwide, Webb said;

- Taxes: The draft calls for deducting most taxes from premiums when calculating the ratio, but Democratic committee chairmen have requested a more restrictive definition that would lead to a higher effective ratio;

- Fluctuations: Commissioners want to allow adjustments over several years for smaller health plans, to avoid penalizing them if they have a bad year with unusually large pay-outs.

The draft is expected to be adopted as is on Monday by an NAIC panel, but it could change before the whole body votes on it in mid-October. The health reform law mandates that health plans spend at least 80 percent of premiums on care (85 percent in the large-group market) or pay rebates to customers. The NAIC is tasked with writing the regulation, to be certified by Health and Human Services Secretary Kathleen Sebelius.

Webb added that several services - nurse hotlines and radiology benefit managers for example - could be allowed as medical expenses on a case-by-case basis, if they demonstrably improve care. He said state and federal regulators would be tasked with auditing each health plan's MLR filing, with a test run next year before rebates begin in 2012.

"We do recognize that there is no way we can get this 100 percent right," he said at a forum of the Congressional Health Care Caucus organized by Rep. Michael Burgess (R-Texas).

Webb also made it clear that the NAIC would soon formally ask Health and Human Services Secretary Kathleen Sebelius to allow a transition period. Webb said the NAIC would likely use an existing proposal (Issue Resolution Document Number 041) as the basis of a letter expected to be sent shortly.

"The NAIC should recommend that the Secretary consult with the insurance commissioner in each state to decide whether to adjust the 80 percent MLR used for the PPACA rebates in one or more years, considering whether the application of an 80 percent MLR is likely to destabilize that state’s individual market," the proposal reads. "Characteristics that should be considered include the following:

• Input from the insurance issuers of individual policies, consumers, and consumer advocates;

• State laws requiring minimum loss ratios;

• Actual historical loss ratios for each individual carrier in the state;

• The number of carriers in the state that offer individual medical policies to new enrollees;

• An evaluation of the vulnerability of the individual medical market to destabilization;

• The financial impact on policyholders from lowering the minimum loss ratio target;

• State laws and regulations regarding cancellation and non-renewal of health insurances;

• The cost to insurance companies of withdrawing from the individual health insurance market;

• Alternative sources of health insurance coverage to consumers;

• Balancing the interests of consumers and insurance companies;

• And any other relevant considerations.

"It may be useful for the NAIC to prepare a standard form for the states and the Secretary to use in evaluating the vulnerability of the individual market in a state," the proposal adds.

Webb said the law allows HHS to allow a transition period if the medical loss ratio looks likely to disrupt the individual market. The law is not clear as to whether a transition period can also be allowed in the small-group market once the determination is made, but Webb said the NAIC's interpretation is that it does.

He also said that Sebelius has recently asked the NAIC to speed up its adoption of the ratio regulation.


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