Starting in 2011, the healthcare reform law requires health insurers’ spending on direct medical care to cover at least 85 percent of premiums for large group coverage and at least 80 percent of premiums for small group and individual coverage. This ratio of medical care to other costs is called the “medical loss ratio.”
Sen. Rockefeller, who has been closely studying health insurers’ medical loss ratios, offered some pointers for Ms. Sebelius, who will be drafting regulations to enforce the law in the coming months. Using WellPoint as an example, he said that the company has stated its overall medical loss ratio as 82.6 percent, but its specific medical loss ratio varies widely depending on which state the company is operating in and on the type of policy it is offering.
For example, WellPoint’s individual policies in New Hampshire have a very low medical loss ratio of 62.9 percent, meaning that only two-thirds of premiums were used for medical care. The same category of WellPoint policies has a 95.2 percent rate in neighboring Maine. Likewise, the company’s small group policies have a medical loss ratio of only 66.6 percent in Virginia, whereas it is 80.9 percent in Kentucky.
Sen. Rockefeller advised that insurers should provide separate medical loss information by type of policy and by state or other geographic area.
The reform law also creates a new category of insurer spending for activities meant to “improve healthcare quality,” and allows these costs to be put on the medical expense side of the medical loss ratio. The danger is that insures can use this new category to buff up their medical loss ratios, Sen. Rockefeller said in the letter. He wrote that even a small portion of administrative expenses reclassified as “quality improvement” can be enough to tweak the insurer’s medical loss ratio over the required minimum.
To prevent this kind of abuse, he recommended using strict definitions of quality improvement activities created by the Agency for Healthcare Research and Quality.
Read Sen. Rockefeller’s letter on health insurers’ compliance with healthcare reform (pdf).
