This week’s excellent Cavalcade of Risk includes a thought-provoking article by Jaan Sidorov of the Disease Management Care Blog. Last week I wrote about some of the problems that arise when we try to apply strict black and white standards to areas that are mostly comprised of shades of grey. Dr. Sidorov addresses this issue as it applies to the new MLR guidelines that went into effect at the start of the year. He notes that in the individual health insurance market, administrative costs are higher and profit margins are lower than they are in the large group market. This puts insurers who provide individual policies at a disadvantage when it comes to meeting the MLR rules, and the threat of market instability is thus higher in the individual market.
Here in Colorado, Aetna announced in January that they would no longer offer individual policies. Whether or not the MLR rules played a part in their decision is unknown, but it’s possible. The rest of our major carriers, however, are continuing to offer new policies. We’re lucky to have numerous carriers in the individual market, and relatively robust competition compared with some states. Dr. Sidorov’s article describes the CMS waivers that are being granted or considered for some states where there are very few carriers in the market, some of which are struggling to meet the MLR guidelines. States like Colorado are much less likely to suffer a destabilized individual insurance market because of the MLR rules, but the waivers being granted by CMS do bring up some questions about whether the MLR guidelines were implemented too hastily in the first place.
Last fall, the National Association of Insurance Commissioners considered whether the MLR guidelines should be implemented with a transitional period, rather than all at once on January 1, 2011. But they ultimately decided to skip the transitional introduction of the MLR rules. The CMS creation of three year waivers for states with struggling individual insurance markets renews the question of whether it might have been a better idea to implement the MLR guidelines gradually. Or perhaps the MLR issue could have been better addressed on a state or regional level, rather than trying to apply a one-size-fits-all rule to all of the insurance markets in the country. A state with two functional insurance carriers offering individual policies is obviously going to have a very different marketplace than a state with ten major carriers competing for business. It will be interesting to see how things play out in the states that are granted temporary MLR waivers by CMS. Three years from now, will their insurance markets be able to provide adequate coverage and also comply with the 80/85% MLR guidelines? Or will the waivers morph into something that allows the impacted states to set their own guidelines? Time will tell.