The Centers for Medicare & Medicaid Services (CMS) issued a final regulation that will ensure health insurance companies spend at least 80 percent of consumers’ health insurance premiums on medical care, not income, overhead and marketing. Insurance companies that fail to meet the new standard are required to provide a rebate to consumers. This is known as the Medical Loss Ratio (MLR).
MLR rules under the Patient Protection and Affordable Care Act (ACA) took effect on January 1, 2011 but the new final rule makes modifications and provides certainty to how the MLR is calculated. These modifications are based on public comments solicited in an earlier version of the rule published by CMS in the spring. The modifications made in the new rule:
- Make the MLR rebate tax free: Rather than having insurers send checks that could be taxed, workers in group health plans can receive rebates in a way that is not taxable.
- Increase transparency: Consistent with comments from consumer groups, the new regulation proposes that all consumers receive a notice, showing not just the amount of any rebate, but what the insurer’s MLR means regardless of whether there is a rebate, and how the insurer’s MLR has improved under the new law. In addition, data on the special types of plans, mini-meds and expatriate plans, will be publicly posted in the spring.
- Keep strong policies on how MLR is calculated: The final rule makes only a minor change to a quality improvement definition to promote insurer improvements in defining or coding of medical conditions for a limited window of time.
- Phase down the special circumstances adjustment for mini-med plans: In 2011, so-called mini-med plans received a special circumstances adjustment to their MLR in the form of a multiplier of 2.0 for 2011. The final rule phases it down from 1.75 in 2012 to 1.5 in 2013 to 1.25 in 2014. Mini-med plans will be banned by the prohibition on annual limits in the Affordable Care Act starting in 2014.
- Recognize circumstances of special types of plans: The final rule, after reviewing data, keeps the expatriate plan multiplier adjustment at 2.0 due to their unique structure. It also levels the playing field between nonprofit and for-profit insurers in states with premium taxes.
The effective date of the rule is January 1, 2012.
CMS is considering comments on the process for providing rebates to group enrollees and reporting of rebates. Comments will be accepted until January 6, 2012.
Additional information:
Medical Loss Ratio: Getting Your Money's Worth on Health Insurance, final rule fact sheet from the Center for Consumer Information & Insurance Oversight (CCIIO)
Technical Release No. 2011-04: Guidance on Rebates for Group Health Plans Paid Pursuant to the Medical Loss Ratio Requirements of the Public Health Service Act, Employee Benefits Security Administration (EBSA)
Medical Loss Ratio Rebate Requirements for Non-Federal Governmental Plans, interim final rule with request for comments, Centers for Medicare & Medicaid Services (CMS), 12/7/11