On December 2, the Centers for Medicare and Medicaid Services (CMS) issued a final regulation on the medical loss ratio standard (MLR) and an interim final rule on the medical loss Ratio Rebate Requirements for Non-Federal Governmental Plans. The MLR final rule amends provisions included in the December 1, 2010, interim final rule.
Agent and Broker Compensation
The final rule does not modify the provisions in the December 1, 2010 interim final rule regarding agent and broker compensation. That is, according to the final rule, agent and broker compensation is considered an administrative expense in the MLR calculation. This decision comes shortly after the National Association of Insurance Commissioners (NAIC)’s vote to pass a resolution urging Congress and the U.S. Department of Health and Human Services (HHS) to change MLR provisions and regulations with respect to agent and broker commissions. On June 30, 2011, NAIC’s Professional Health Insurance Advisors Task Force voted in support of legislation (H.R. 1206) introduced by Representative Mike Rogers (MI) to remove producers’ commissions from the calculation of the MLR.
Changes to the Interim Rule
The final rules make changes to the previous rule based on public comments submitted to CMS. The changes include:
1. Rebates for Consumers
Compared to the previous rule, the final rule makes the MLR rebate tax free. That is, the rule requires that carriers provide rebates to group policyholders through lower premiums or any other way that is not taxable rather than send checks that could be taxed.
2. MLR Information to Consumers
Insurers will be required to provide an explanation to consumers about their MLR regardless of whether they have to pay out rebates. They will also have to explain how their MLR has improved under the new law.
3. Special Circumstances Adjustments
To address the special circumstances of mini-med and expatriate plans, the Affordable Care Act (ACA) allows HHS flexibility in its treatment of these plans. In the 2010 interim final rule, CMS applied a methodological adjustment—a 2.0 multiplier, which effectively allows the plans to meet half the standard— to the way their MLRs were calculated in 2011 and accelerated reporting by issuers of these plans. The final rule uses the first two quarters of actual data to phase down the adjustment for the mini-med plans and extend the adjustment methodology for expatriate plans indefinitely.
4. ICD-10 Conversion Costs
The final rule allows a portion of ICD-10 conversion costs of an issuer’s earned premium in a relevant state market to be counted towards quality improvement activities for the 2012 and 2013 MLR reporting years. However, the rule does not allow this exemption for claims adjudication or the cost of maintaining the new coding system, which becomes effective in 2013.
