St@teside

Delaware, Iowa, Kentucky, and North Dakota received medical loss ratio (MLR) determinations in the last couple of months. Iowa and Kentucky received adjustments that were less than what they requested.  Requests from Delaware and North Dakota were denied.

On September 20, 2011, the Center for Consumer Information and Insurance Oversight (CCIIO) within the Centers for Medicare & Medicaid Services (CMS) denied Delaware’s request to reduce its existing 80 percent MLR standard to 65 percent for 2011, 70 percent for 2012, and 75 percent for 2013. CCIIO determined that Delaware’s individual market is not likely to become destabilized if the 80 percent MLR standard is applied. Furthermore, none of the three largest partially credible¹ issuers had provided notice of withdrawal from the individual market. Blue Cross Blue Shield will not need to provide rebates because it had an MLR of 88 percent.  The other two—Golden Rule and Aetna—will likely need to provide rebates, but will be profitable nonetheless and will not exit the market.

Iowa received approval for an MLR adjustment on July 22.  The state requested an adjustment of the 80 percent MLR to a 60 percent MLR standard for 2011, 70 percent for 2012, and 75 percent for 2013. CCIIO approved an adjustment of the MLR standard to 67 percent for 2011, 75 percent for 2012, and 80 percent thereafter.

While Iowa’s dominant insurers, representing 88 percent of the state’s individual market share, are not expected to owe rebates, the smaller issuers could owe rebates in 2011.  Furthermore, since these smaller carriers also reported high commissions and are locked into binding multi-year agent commissions and provider contracts, it would be more difficult for them to adjust their business models to meet the 80 percent standard. This could result in these issuers potentially exiting the market and leaving approximately 15,000 enrollees without coverage.  To avoid a potential exit by the smaller carriers, CCIIO approved an adjustment of the 80 percent MLR standard. However, the adjustment is less than what Iowa requested because CCIIO concluded that only one carrier—American Republic—had a lower MLR than the 67 percent CCIIO approved.  However, even under Iowa’s request of a 60 percent adjustment, the carrier would have to pay rebates since its MLR was 48 percent in 2010.

Kentucky also received its approval for an MLR adjustment on July 22. The state requested an adjustment of the 80 percent MLR standard to 65 percent for 2011, 70 percent for 2012, and 75 percent for 2013.  CCIIO approved a 75 percent adjustment for 2011 only. The state would have to comply with the 80 percent MLR standard beginning 2012.

CCIIO recognizes that the immediate implementation of the 80 percent MLR standard could cause some of the state’s insurers to leave the market.  Four issuers would pay rebates in 2011 if the 80 percent MLR standard is applied. One carrier—Time—has indicated an intent to leave the market absent an adjustment of the MLR standard. Another carrier—Golden Rule—has joined Time in raising concerns about commissions. That is, these carriers are currently paying high commissions and are locked into binding multi-year agent commissions and provider contracts, making it more difficult for them to adjust their business models to meet the 80 percent standard.

Although CCIIO believes the implementation of the 80 percent MLR standard in 2011 might destabilize the individual market in 2011, the agency finds a 75 percent MLR adjustment to be sufficient for all the carriers to be able to comply. Time, the issuer that has indicated intent to withdraw, had an MLR in 2010 that almost equals 75 percent. Both Humana and Golden Rule had a 71 percent MLR in 2010, but their rebates would be reduced in half after applying the 75 percent rather than the 80 percent MLR standard. Finally, Anthem’s 2010 MLR was 78 percent, so it will not pay rebates after the adjustment. Furthermore, Anthem intends to adjust its business model to comply with the 80 percent MLR standard.

North Dakota’s request for an adjustment to the 80 percent MLR standard was denied on July 22. The state requested an adjustment to 65 percent MLR for 2011, 70 percent for 2012, and 75 percent for 2013.

In its letter, CCIIO indicated that the state’s application for an adjustment failed to meet the criteria for market destabilization and reduced consumer access to insurance products and agents and brokers. For example, the application did not show that:

• Issuers are reasonably likely to withdraw from the individual market. To the contrary, every issuer is pricing or will be pricing, to an 80 percent MLR.

• Consumers are not likely to lose access to agents and brokers. Data from the National Association of Health Underwriters (NAHU) do not show that commissions have been reduced in North Dakota. The state also has not provided data on the likelihood of reduced commissions, the number of agents or brokers who might leave the business, or on the number of consumers who might be affected. 

¹A partially credible issuer is one whose MLR is based on experience from 1,000 to 75,000 life-years and is entitled to a credibility adjustment. The adjustment is meant to address the disproportionate impact of claims variability on small health plans.  Life-years refers to the number of months of coverage for all enrollees divided by 12 (U.S. Government Accountability Office. (2011, July). PRIVATE HEALTH INSURANCE Early Experiences Implementing New Medical Loss Ratio Requirements. (Publication No. GAO-11-711). Retrieved from GAO Reports Main Page via GPO Access database: http://www.gao.gov/new.items/d11711.pdf ).