Insurance companies battle health care reform regs

By Barb Rea

Editor's note: Barb Rea is Wyoming's consumer advocate to the National Association of Insurance Commissioners (NAIC). She is attending the NAIC quarterly meeting in Orlando, Fla. She also is volunteering on behalf of Consumer Advocates: Project Healthcare, a group of Wyoming advocates raising the consumer's voice in health care reform. The NAIC is crafting rules that will guide implementation of the the Affordable Care Act.


Health reform is not going to happen magically. The Affordable Care Act (ACA) established the framework for changing the system and now people are working hard to write the rules and regulations that will make it happen.

When you look at the details and the intent of the law, each piece is designed to move the insurance industry to change the way it does business. In exchange the industry will get more customers.

We are trying to move the insurance industry from making its money off risk selection (providing coverage only to healthy people) to one that competes on providing better value to its customers.

But it won’t be easy. For instance, one of the early reforms scheduled to begin Jan. 1, 2011, requires that insurance companies to spend more of your premium dollar on health care (80% in the individual market and 85% in the group market) and less on profit. This calculation is known as the Medical Loss Ratio.

And the companies have to prove they’re meeting the Medical Loss Ratio requirement. If they don’t reach this ratio, they have to give the money back to consumers in the form of a rebate. The law is requiring public transparency and accountability—new concepts in the insurance world.

The goal of this reform is not so much to get money back from the insurance company but rather to force the companies to price their products correctly.

Over the last 5 months the National Association of Insurance Commissioners (NAIC) has brought together consumer representatives, insurance commissioners and insurance company representatives to craft rules and regulations on the Medical Loss Ratio, as assigned to them through the new federal healthcare law. They have been conferencing sometimes daily to decide what numbers have to be reported and create a way to collect and report this information.

This week at NAIC’s quarterly meeting in Orlando, the final decisions on this topic will be made. As you can expect there has been considerable wrangling, with the industry trying to include as many items as possible in the medical expense side of the equation and as few as possible on the overhead side. The consumers won a good number of those battles but not all.

Now just days before this final vote, the industry is pushing for several last minute changes in the calculation of the Medical Loss Ratio. The changes essentially mean many companies would never have to pay a rebate (or change their pricing).

Here are the changes they seek:

• They want brokers’ commissions excluded from the equation;

• They want companies who sell in several states to be allowed to aggregate their numbers nationally, which would enable them to disguise high profits in one state by combining loss ratios from those states with loss ratios from other states where they may charge lower prices or pay higher health care costs;

• The industry also wants to change the actuarial formula previously adopted by the drafting group for evaluating compliance with the Medical Loss Ratio standard. Known as the “credibility adjustment,” the industry wants a change that favors insurance companies over consumers.

The implications are stunning. The industry can appear to be helping to transform the system but continues to try to get away with as much as possible to maintain “business as usual.” This is how they have made their fortunes and there is no reason to believe they won’t continue to behave that way.

Transparency and oversight are provided for in the ACA. To get this to work, we must be vigilant in monitoring the transformation of the health care system. If we don’t have citizens willing to take this job we are not going to move this to the finish line.