The National Association of Insurance Commissioners is meeting this week to figure out the specifics of how the new medical loss ratio (MLR) rules should be implemented, and they’ll be voting on the issue tomorrow. Basically, health reform law calls for health insurance carriers to be spending 80 – 85% of premium dollars on medical care as of January 1, 2011. But the insurance industry would prefer to see the increased MLRs phased in gradually. They say that they can meet the new MLR requirements over the next few years, but that trying to do so all at once by the first of the year will only serve to drive some carriers out of business entirely.
Experts appear to agree that the January 1 MLR requirements would likely doom some of the smaller health insurance carriers. And it’s hard to see that as a good thing, as it would simply result in reduced competition in the insurance industry. Deborah Chollet, a senior fellow and health care economist with the Mathematica Policy Research, stated that “some companies just won’t be able to make it,” but that “big carriers can meet the new rule.” She went on to say that most people whose health insurance carriers stop providing coverage will have plenty of options available from the other carriers that remain in the market.
But the problem with that logic is that one of the most important provisions of the PPACA – the requirement that all policies be guaranteed issue – doesn’t kick in for another three years. So whether or not a person has lots of options following the departure of their carrier from the market is still very much dependent on their health. If a healthy person is insured by a carrier that opts to go out of business because it’s unable to meet the MLR rules on January 1, he or she will likely find it relatively easy to secure a new policy in the individual market. But a person with pre-existing conditions might have a much harder time. Yes, the PPACA provided funds for state high risk pools, but they require that a person be uninsured for six months before joining, and there’s concern that the funds allocated might not last until 2014.
Ideally, it does make sense that most of our premium dollars should be spent on medical care. The new MLR rules will push insurers to be more efficient and to minimize administrative costs, which will ultimately benefit consumers. But implementing the new rules all at once on January 1 might do more harm than good. If implementing them in phases over the next three years means that more insurance companies can stay in business, that seems like a much better plan. We’ll see what the NAIC comes up with tomorrow, but they have already expressed concern that “In the absence of the transitional period, the markets of some states are likely to be destabilized.” It can hardly be seen as beneficial for consumers if the rapid implementation of the new regulations results in fewer carriers competing for business, or a destabilized insurance market.