Senator Jay Rockefeller, chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, has been on a tear recently against the insurance industry. His committee just released a new report showing how private insurers are already gaming the medical loss ratio. Here's the must-read report below:
The staff report also highlights how the insurance industry is beginning to consider the financial impact of the new federally required minimum loss ratio requirements, including questionable changes in their accounting practices. WellPoint, for example, has already "reclassified" more than half a billion dollars of administrative expenses as medical expenses. A leading industry analyst also recently released a separate report explaining why for-profit insurers might attempt to satisfy consumer protections in the law through an "MLR shift" – reclassifying previously identified administrative expenses as medical expense to create the appearance of a higher medical loss ratio.
The report also goes into further detail about what administrative expenses private insurers are trying to reclassify as medical expenses in order to meet the medical loss ratio requirement under the new health law. The committee had to find the information on medical loss ratio reports by going to the 2008 "Accident and Health Policy Experience Exhibit" forms that were filed with the National Association of Insurance Commissioners (NAIC). They had to do this because private insurers refused to cooperate with the committee, claiming their information was proprietary and business sensitive.
And what did the committee find? For instance, UnitedHealth told their investors that their overall MLR in 2008 was 82%, but the committee investigation through the NAIC filings showed that the company's medical loss ratio was 71% in the individual market, 79% in the small group market, and 84% in the large group market.
The new health law requires that private insurers have an 80% MLR for the individual and small group insurance markets, and 85% for the large group market. The report also points out that:
While the NAIC accounting rules define "medical loss" as the value of medical claims an insurer has actually paid ("incurred claims"), plus the amount of money the insurer sets aside to pay future claims ("contract reserves"), the new law will potentially allow insurers to classify a broader set of expenditures as medical.
Under the new law, insurers will be able to consider expenditures on "activities that improve health care quality" as medical expenses for the purpose of calculating medical loss ratios. For example, if an insurer spends 78% of its small group premiums paying claims and 2% on quality-improving activities, it will have met the law's 80% minimum medical loss ratio requirement. The law instructs the NAIC, subject to the certification of the Secretary of HHS, to establish uniform definitions of "activities that improve health care quality" and "non-claims costs."
WellPoint has taken the public step of reclassifying some of its administrative expenses as medical expenses. Here's how the report puts it:
A recent announcement about accounting changes by insurance giant WellPoint is a first indication of how for-profit insureres will approach this issue. In the company's most recent investor call, WellPoint executives announced that the company has started "reclassifying" certain expenses that the company had traditionally classified as administrative expenses. This reclassification involved expenditures on the following items:
- Nurse hotline
- Health and wellness, including disease management and medical management
- Clinical health policy
By reclassifying these administrative expenses as medical benefits, the executives projected that WellPoint's 2010 medical loss ratio (which the company calls its "benefit expense ratio") would increase by 170 basis points, or 1.7%. Because WellPoint expects to collect more than $30 billion in premiums from its commercial health care customers in 2010, this "accounting reclassification" means that the company has converted more than half a billion dollars of this year's administrative expenses into medical expenses.
That's a pretty sweet MLR shift that allows the company to keep $500 million dollars in their pockets. Also, a health care industry analyst, Carl McDonald of Oppenheimer & Co., predicts that companies will review their current spending and attempt to shift as many expenses as possible from administrative to medical, such as a possible scenario of an MLR shift of 500 basis points, or 5%. This is very dependent on how much MLR recharacterization is allowed by HHS Secretary Sebelius.
This is where you guys come in, and we need your help in submitting a comment to the Health and Human Services Agency about the medical loss ratio to prevent private insurers from trying to retain their profits by reclassifying administrative expenses as medical expenses.
CLICK TO COMMENT ON THE MEDICAL LOSS RATIO TO PREVENT INSURERS FROM GAMING THE MEDICAL LOSS RATIO!
Here's a great tip from one of our kossacks, zonk, on how to submit a comment to HHS:
1. STAY ON THE SPECIFIC TOPIC
This notice of proposed rulemaking deals SOLELY with Sec 2718 of the bill. This is NOT the place to address any other aspect of the bill. Your comments will be most effective if you stick to the specific regulations to be issued. If you go afield of the Sec 2718 provisions (i.e., MLR) - be sure to demonstrate how they tie directly directly to this provision. Essentially - less is more, in this case. A massive treatise on the whole bill simply isn't going to be effective here.
2. BE AN EXPERT
This is not intended whatsoever to scare anyone off - but especially since this notice deals solely with just one section - make yourself an expert. Read the entire notice. (Re-)Familiarize yourself with the specific section of the law.
3. REMEMBER - THE REGULATORS CANNOT CHANGE THE LAW
If you don't like the way Sec 2718 is written - complaining about it here won't do much good. The job of the HHS in this case is to essentially write the specific what and more generally, the "how". Suggest how they should interpret the law and what kind of safeguards you feel are valid.
4. REMEMBER YOUR AUDIENCE
These folks are the wonkiest of wonks (and believe it or not, that's true even under Republican administrations). A firebrand flame is going to get a ignored. Passion is fine - but I'd suggest immediately ridding your thinking of any profanity, buzzwords, etc. This isn't a blog post meant to convince people to support a POV -- it's a request to... nerds... more or less, to understand your POV and write an interpretation and guidance for applying the law.
5. ATTACHMENTS ARE ALLOWED
Do note - there is an option to attach documentation. If you've got any good material -- from Kaiser, from WHO, from whatever -- do feel free to refer to it and attach it. Again - as per point #1 - make sure it's on topic.
Our work won't stop on getting real health care reform, and neither will yours.
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