CMS ISSUES MEDICAL LOSS RATIO REGULATIONS

Background. Among the most hotly debated provisions of the Patient Protection and Affordable Care Act (PPACA) have been the medical loss ratio (MLR) requirements, which were intended to lower healthcare costs by requiring health insurance companies to spend less on marketing and overhead expenses and more on care. For an insurer, MLR represents the percentage of premiums spent on reimbursement for clinical services provided to subscribers – i.e., amounts that the insurer must use to pay for healthcare.

Effective January 1, 2011, insurers whose MLR does not meet the minimum PPACA standards must rebate the difference to their enrollees beginning with the 2012 plan year. PPACA requires large group plans to spend at least 85% of the premium dollar on care and quality improvement activities, and individual and small group plans to meet an 80% standard. Many insurers have lowered commissions for agents and brokers as part of their effort to reduce overall administrative costs in order to meet the MLR requirements.

New Regulations. On December 2, The Centers for Medicare & Medicaid Services (CMS) issued two regulations on the MLR which mostly reaffirm the general MLR requirements as spelled out in PPACA. One rule deals with distributions of rebates to consumers, and the other makes technical changes to the MLR calculation and reporting methodologies and the mechanism for distributing rebates to group health plan enrollees. The new rules will be published in the Federal Register on December 7 and will both take effect on January 1, 2012; however, CMS is accepting public comments on both rules for possible future modification. CMS issued a fact sheet on the new rules.

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