Medical loss ratio – finish line approaches

An NAIC subpanel lays the groundwork for approval of health care reform’s medical loss ratio requirement, The Hill reports. Issues that remain:

– Aggregation: The draft regulation calls for the medical loss ratio to be calculated for each company by state. The large-group health plans want to be able to aggregate nationwide, Webb said;

– Taxes: The draft calls for deducting most taxes from premiums when calculating the ratio, but Democratic committee chairmen in Congress have requested a more restrictive definition that would lead to a higher effective ratio;

– Fluctuations: Commissioners want to allow adjustments over several years for smaller health plans, to avoid penalizing them if they have a bad year with unusually large pay-outs.

To interject:

Aggregation: Companies like aggregation because its easier and results in smaller fines. Regulators dislike aggregation because a company could conceivably get away with posting a low loss ratio every year in a state (especially a small one) and never pay a fine. And the extra revenue makes them happy, too.

Taxes: I think the Hill blogger has it backwards. A more restrictive definition would leave more tax dollars in premium, which is the denominator of a loss ratio. A bigger denominator lowers the loss ratio. So a more restrictive definition would lead to a lower effective loss ratio.

Fluctuation: They’re talking about credibility here and multi-year calculations. (I think the reporter has it backwards again. A company with an exceptionally bad year isn’t penalized. The bad year raises its loss ratio, meaning it won’t be fined for having a low loss ratio.)

Finally,

A larger panel is scheduled to vote Oct. 14, and if the definitions are accepted the regulation could come before the NAIC’s executive/plenary session at the Fall National Meeting in Orlando for final approval on Oct. 21.

Just to add: I’m pretty sure feds have to approve what NAIC OKs, so there’s another step after Oct. 21.

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