The National Association of Insurance Commissioners (NAIC), the nation’s leading organization of insurance regulators, submitted to the U.S. Department of Health and Human Services (HHS) a set of recommended guidelines that would change the way insurance companies calculate their “medical-loss ratios,” making it more consumer friendly.
Under the Affordable Care Act, when insurance companies cover individuals and small groups, they will soon be required to maintain a medical-loss ratio of at least 80 to 20 (or 85 to 15 when insurers cover large groups). The majority of their revenue is to be spent on direct medical care, with the remaining 20 percent available to go toward administrative costs and profit.
Insurance companies that do not meet these minimums will be required to provide rebates to their customers.
The NAIC guidelines will not become official policy unless approved by HHS. However, they have preliminary approval from HHS Secretary Kathleen Sebelius, who said they are “reasonable [and] achievable for insurers, and will help to ensure insurance premiums [that] are, for the most part, supporting health benefits for consumers.”
Defining ‘Direct Medical Care’
The NAIC has been debating the specifics of exactly what constitutes “direct medical care” since March.
Insurance companies have pushed for a broad definition of the term — one that would include costs related to paying claims, signing up doctors, and running customer service call centers.
Consumer advocates, meanwhile, argued that those costs are all clearly administrative in nature. They pushed for a narrower definition of “direct medical care,” which they argue would benefit insurance policy holders.
The NAIC voted unanimously on October 21 to pass the more consumer-friendly set of recommendations governing the way that medical-loss ratios are calculated. Several last-minute amendments to the recommendations — including one that would have allowed broker commissions to be counted in the “direct medical care” portion of the ratio — were all defeated.
“This is such an important victory for consumers,” said Carol Regan, PHI Director of Government Affairs and the Health Care for Health Care Workers campaign. “It will ensure that insurance companies don’t waste premium dollars on items not related to medical services.”
“This will also benefit direct-care workers who have seen their benefits erode and premiums continually rise,” Regan said.
– by Matthew Ozga
