New rule could send some insurers packing
By Parija Kavilanz, senior
writerOctober 18, 2010: 2:05 PM ET - CNN Money
NEW YORK (CNNMoney.com) -- Industry experts say more insurers will drop
health care coverage or go out of business if they are forced to meet a Jan. 1
deadline that requires them to boost the money devoted to providing care.
The Obama administration is awaiting the recommendation of the National
Association of Insurance Commissioners, meeting in Orlando this week, for how
and when to implement key changes to the "Medical Loss Ratio" rule.
Under health reform, beginning 2011, insurance companies will have to spend
80% to 85% of the premiums they collect on care instead of toward their own
profits and overhead costs.
Prior to reform, requirements varied from state to state. In some cases,
insurers didn't have to meet any minimum requirements.
For example, some plans have a 40% loss ratio. That means individuals could
be paying $1 for 40 cents of care.
Beginning in 2012 If insurers don't increase that loss ratio to 80 cents per
dollar paid, they will have to give customers a rebate for the difference .
Scrambling for coverage. The government has tasked NAIC with voting on
the final rules that determine how quickly insurers have to comply with the new
regulation.
The insurance industry is on edge, claiming many insurers won't be able to
meet the New Year's deadline without causing significant disruption to their
businesses.
For that reason, insurers asked the NAIC to consider a "transition" period
that allows insurers to gradually phase in the higher requirement.
"A transition plan that provides for an orderly progression to 2014 is
essential," Karen Ignagni, president of America's Health Insurance Plans, wrote
in a letter to NAIC last week, adding that the consequence of not phasing in the
change would be a "potential disruption of coverage for millions of Americans
and reduced competition prior to 2014 market reforms."
Survival of the fittest. One insurance industry expert agrees that the
new requirement could either knock some carriers out of business or force them
to drop customers.
"The issue that some carriers will leave the market as a result of this is
real," said Deborah Chollet, senior fellow and health economist with
Washington-based Mathematica Policy Research.
"Some companies just won't be able to make it," she said.
Setting the new standard is the government's way of forcing insurers to
become more
efficient.
"It's survival of the fittest," she said. "Big carriers can meet the new
rule."
Even if the smaller carriers exit the market, Chollet said that most
individuals will easily be able to find coverage from large carriers who can
meet the new standards.
Phase in transition. The NAIC has raised some concerns about whether
insurers can meet the 80% threshold by next year and suggests that a phased in
approach would be best.
"In the absence of the transitional period, the markets of some states are
likely to be 'destabilized,'" the group said.
"We have some carriers who have already exited the market in Iowa. Others are
dropping
health insurance products," said Iowa Insurance Commissioner Susan Voss,
president-elect of the National Association of Insurance Commissioners.
Some states, including Maine and Iowa, have already asked for an extension on
the Jan. 1 deadline.
In a letter last week to Health and Human Services Secretary Kathleen
Sebelius, the group said that all states may need a phase-in approach.
"Several companies are telling us they can meet the MLR requirement in three
years, but not now," Voss said.
Chollet disagreed. "They've already had six to eight months to prepare for
this. If they're asking for more time, I would say push the deadline to April
1," Chollet said.