TOPEKA — The Kansas Insurance Department is
urging the federal government to let it phase in new rules that are of concern
to insurance agents and that some insurers may struggle to meet.
The department has asked the U.S. Department of Health and Humans Services
for a waiver to give health insurance companies three additional years to comply
with a requirement in the health reform law that says they are to spend at least
80 percent of their premium dollars on health care services to their policy
holders.
Without the waiver, companies that fall short of the so-called medical loss
ratio in 2011 would have to pay rebates to customers, starting next year.
In Kansas, most health insurance companies already meet the requirement.
But department officials decided to apply for the waiver after learning that
some companies fear they will be subject to penalties and have been cutting
their agentsf commissions in an effort to reduce costs.
gGoing to a graduated phase-in wonft address all the concerns that have been
raised by the companies, but it should minimize the potential impact,h said
Linda Sheppard, head of the insurance departmentfs accident and health
division.
Insurance agents have long warned that if companies are forced to cut their
administrative overhead, cuts in agent commissions are inevitable. That, they
say, would force many agents to exit the health insurance market, leaving many
beneficiaries to navigate a complicate marketplace on their own.
gCommissions on the individual market used to be 10 to 15 percent, now, since
Jan. 1, theyfre down to 5 to 10 percent,h said Robert Richey, an independent
insurance agent in Wichita.
gOn the small group market, they used to be 5 percent, now theyfre 2
percent,h he said. gThe carriers can live on those percentages, but the agents
canft. Wefre being phased out.h
Eventually, Richey said, beneficiaries will be referred to toll-free call
centers.
In 2014, the state is expected to comply with another requirement of the
federal health reform law by establishing an online insurance purchasing
exchange. Tens of thousands of Kansans, including many who are now uninsured,
are expected to purchase coverage through the exchange, many with the help of
federal subsidies.
gWhen that happens, consumers are not going to have an advocate,h Richey
said. gItfll be very impersonal.h
Richey testified during a March 14 hearing hosted by Kansas Insurance
Commissioner Sandy Praeger.
gWe included some of the agent testimony in our waiver application,h Sheppard
said.
The departmentfs proposal calls for giving insurance companies three
additional years to fully comply with the MLR requirement, reaching the
80-percent threshold in 2014 rather than this year.
Currently in Kansas, insurance companies are allowed to have a medical-loss
ratio as low as 55 percent. The measure has not changed since 1981.
According to the U.S. Department of
Health and Human Service website, Kansas is one of 12 states that have
applied for a medical-loss ratio waiver.
In March, HHS granted Maine a three-year exemption after state officials
warned that one of the statefs largest health insurers would not be able to meet
the requirement and had threatened to pull out of market.
HHS denied a similar exemption for New Hampshire.
In its denial letter, issued last week, HHS suggested that New Hampshire
consider a phasing in the requirement over three years, a proposal similar to
what Kansas has requested.
Whether HHSf suggestion bodes well for Kansas remains to be seen.
gWefve not heard back from them yet,h Sheppard said, referring to HHS.
Kansas, she said, appears to be the first state to propose a three-year
phase-in.
Earlier this year, Sheppard released a list of the five largest health
insurance companies in Kansas, their medical-loss ratios, and their combined
share of the individual and small-group markets in 2009:
• Blue Cross Blue Shield of Kansas, 93-7 medical-loss ratio, 48.5 percent of
the market;
• Blue Cross Blue Shield of Kansas City, 91-9 medical-loss ratio, 16.1
percent market share;
• American Medical Security, 97-3 medical-loss ratio, 4.6 percent of the
market;
• Time Insurance Company, 57-43 medical-loss ratio, 6.5 percent market
share;
• Coventry Health and Life, 72-28 medical-loss ratio, 4.6 percent market
share.
Michael Murphy, president and CEO at Coventry Health Care of Kansas, welcomed
news of the insurance department's waiver application.
"We are pleased with the decision of the State of Kansas to proceed with a
waiver request," Murphy wrote in an email to KHI News Service. "If it is
approved, it will allow additional time for insurers to adjust administrative
expenses on a more reasonable timeline. It will lessen the potential for
disruption to our members and the loss of jobs due to more extreme cost
cutting."
He declined to say whether Coventry Health Care of Kansas is meeting the
medical-loss ratio requirement in 2011.
"The current minimum MLR in the state of Kansas is 55 percent," he wrote.
"While each carrier is different, a typical industry target for individual
business is to maintain an MLR closer to 65 percent. Actual MLR's tend to be
very volatile and can swing dramatically from year to year, depending upon the
health conditions that arise during a given year. The smaller the population
base, the more volatile the MLRs will be."
Typically, the insurance department does not gather MLR data on large-group
insurers because their administrative costs tend to be lower than those in the
individual and small-group markets.