HHS released regulations Monday dealing with the medical loss ratio, a provision in the health law that requires insurers spend at least 80 percent of premium dollars of health care. (See related Kaiser Health News story: New Law’s Health Insurance Regulations Could Mean Rebates For Consumers).
JACKIE JUDD: Good day. This is Health on the Hill. I’m Jackie Judd. Another piece of the health care reform law has been put into place. The Department of Health and Human Services issued rules today that require insurers to spend at least 80 percent of their revenue on patient care as opposed to administration and marketing.
HHS SECRETARY KATHLEEN SEBELIUS: They balance the needs of consumers with those of insurers so that we can preserve what’s good about our current system and begin to change what’s not working well.
JACKIE JUDD: Behind the announcement was a hard-fought battle by insurers to broadly define how they reach the threshold of spending on direct care. Department official Jay Angoff said despite claims to the contrary, no one will lose their insurance as a result of these new rules.
JAY ANGOFF: We think the medical loss ratio standard, therefore, is a big win for the American people. It will result in premiums lower than they would otherwise be, better benefits or rebates or a combination of all three. It will provide an unavoidable incentive for insurers to minimize their administrative costs and even more important, it will provide an incentive for insurers to maximize quality and to drive down underlying health care costs.
JACKIE JUDD: Here to discuss this and other policy news are Mary Agnes Carey, Senior Correspondent for Kaiser Health News, and Julie Appleby, also a Senior Correspondent for KHN. Welcome to you both. We heard some big promises made by HHS today, Julie. What are the rules that they developed over these many months?
JULIE APPLEBY: Well, the rules say that insurers must spend at least 80 percent of their revenue on patient care if they are covering individuals or small groups, and 85 percent if they are large groups. What that means is they have got to spend on things like doctor bills and hospital bills, claims, quality improvement, disease management, that type of thing.
But [HHS] also said there are certain things that they can’t spend the money on and have it count towards medical care. Those would be the administrative costs. And … everything from profits, how much they pay their executives, [to] things like when they check out a doctor’s credentials, they have to pay some money to do that, and a couple of other things. And you are right. Insurers wanted the broadest possible definition of medical care.
JACKIE JUDD: And so what did they get in this and what did they not get?
JULIE APPLEBY: What they got in this was: they are able to count things like disease management, etc., etc. They are not able to count things like broker commissions or running a customer service hotline, which some of them wanted. Many insurers also wanted to be able to calculate this on a nationwide basis, so they may have some areas of the country where they spend a lot more than in others, and it would have balanced out.
JACKIE JUDD: They could average it out.
JULIE APPLEBY: But they did not get that. It is state by state. They also wanted to be able to … deduct all of their taxes out of their medical costs so that they were not able to get that. They are going to be able to deduct all their state and federal taxes, but not their taxes on, say, investment income.
JACKIE JUDD: And waivers, will there be any waivers if states say we simply can’t do this without destabilizing the market?
JULIE APPLEBY: There will be. In fact, already four states have asked for that: Maine, South Carolina, Iowa, and Georgia have already written letters saying: ‘Look if we don’t get some kind of adjustment, it will destabilize our individual market.’ HHS has created a process by which other states can do the same thing, they can ask for that and they may or not be given an adjustment, which means maybe there will be a lower medical loss ratio than insurers in that state have to meet.
JACKIE JUDD: And the concept behind this is that consumers ultimately will end up with better care because more dollars are going to be devoted to that care.
JULIE APPLEBY: That is the concept. The concept is they will get more bang for the buck. You are paying a premium. A certain amount of it goes towards medical care and they want that to be at least 80 percent and the rest would be in administrative costs, and by the way if insurers don’t meet that goal, they have to pay a rebate to the consumers.
JACKIE JUDD: And it was said at the news conference today that there would be about nine million consumers at this moment who might be eligible for these rebates. I think there was some surprise in the room that the number was so low.
JULIE APPLEBY: I think so. I think what they are looking at is: first of all it is an estimate and it is based on current year’s data that they have gathered looking at what the medical loss ratio is in many of these insurers. It is a universe of about 75 million people who are covered under this medical loss ratio because those are the folks that are in the types of health plans that are covered by this.
Remember, large group employers who are self-insured [are] not covered by this particular provision.
So, out of 75 million, they’re estimating maybe nine million will be eligible for rebates in 2012, and I think some folks may think that is low. But there are other folks who think that there may not be nine million people who [will] get a rebate, because insurers may adjust, they may start spending more on direct medical care. And some insurers frankly aren’t going to be able to get there and they may drop out of the market.
JACKIE JUDD: And many months ago, the insurance industry made exactly that last point that you just made and said that some consumers may lose coverage as a result of the 80/20 or 85/15 split. Again, Jay Angoff seemed very certain that this would not happen. What is the insurance industry saying today if anything, are they reacting to that?
JULIE APPLEBY: So far today, they’ve been a little quiet. They say they want to read this. It is 300 pages. They want to read it. … These recommendations came from an advisory group called the National Association of Insurance Commissioners. They spent months working on this with stakeholders including the insurance industry and consumers, and at that time in October the insurance industry said that these would destabilize the market, it could reduce the number of choices that consumers have. And I think they are probably going to come out and say something similar, but we haven’t heard from them yet today.
JACKIE JUDD: Okay. I want to shift gears now and talk about something we’ve discussed before on this set, and that’s the doc fix. Come December 1st, unless Congress takes action, doctors who treat Medicare patients could see a 23 percent reduction in what the reimbursement levels are. The Senate last week took some action. What happened there and what still needs to happen to stave off this December 1st deadline?
MARY AGNES CAREY: They passed a one-month patch that would stop these payment cuts through the end of December and the House did not act on it. They’re expected to act on it as soon as they get back from their Thanksgiving break, which is November 29th, and so it looks pretty certain this one-month patch will stick.
Now, as we know, the American Medical Association wanted a 13-month fix, and so lawmakers are trying to work on a larger fix that would last 12 months, but the problem will be, as it always is, money. Where will they get $17 billion, which is the approximate cost of a year-long fix, where will the pay-for come from? Would it come from other Medicare providers? Would it come from other parts of the budget? Will there be enough votes? Nobody really knows, but it seems pretty certain they will have the one month patch.
JACKIE JUDD: And the idea is then during this one month, during the month of December, they could come up with a solution that would last for a year?
MARY AGNES CAREY: That is the hope. I mean, Congress is going to be pretty busy on tax policy and some other issues may be here awhile. I hope we don’t have a repeat of last year. We were all here until Christmas Eve. Who knows? But that is the thought that they will have a month of some breathing room to try to find that right policy for a 12-month patch, and also how to pay for it.
JACKIE JUDD: Is the American Medical Association concerned about this spilling over into a new Congress in January when a lot of the players will be different?
MARY AGNES CAREY: I am sure that they are, because for the things we just discussed, and is discussed so many times, the financing of this is so hard. If it is kicked to the next Congress, for example, you will have a lot of members with a lot of new priorities.
We saw a lot of people campaign on fiscal restraint. They may have other legislative priorities but that said, the idea of reducing payments to doctors who take Medicare patients, and they are threatening, as we know, not to take any new Medicare patients that is also a pretty powerful push on the side to get a fix.
JACKIE JUDD: Okay, thank you both so much, Julie Appleby, Mary Agnes Carey, Kaiser Health News, I appreciate it.