What They Are Saying – Medical Loss Ratio

What They Are Saying – Medical Loss Ratio

(Excerpts taken from comment letters submitted to HHS or NAIC)

American Academy of Actuaries

o “…we would like to raise a broader policy concern-namely, the potential disruptive impact that the implementation of §2718 could have on the individual health insurance market prior to (and potentially beyond) the effective date of the guaranteed issue requirements, due in large part to historical pricing practices employed in the individual market.”

o “Materially reducing the non-claims costs associated with existing business in order to reduce financial losses is unlikely to be feasible. Such a situation might lead some companies currently active in the individual market to terminate the existing blocks of business and leave the market, in an effort to avoid those future losses and the potential solvency concerns associated with those future losses.”

o “If some companies do exit the individual market, then those companies’ former policyholders may find themselves unable to find new coverage in the individual market for a period of years (noting that guaranteed issue requirements do not take effect until 2014), and would not be eligible for the new high risk pools created by PPACA §1101 during the first six months after cessation of coverage.”

o “Individual policies underwritten and issued prior to the introduction of guaranteed issue requirements in 2014 will continue to exhibit traditional patterns of having loss ratios that increase by policy duration. Issuing new underwritten policies over the next few years would therefore tend to make it more difficult for an insurer to achieve an 80 percent annual MLR across its entire block of individual medical business. This could serve as an incentive for carriers who remain in the individual market to minimize their marketing activity prior to 2014, creating a potential lack of product availability in the individual market over the next few years.

o “In order to mitigate these potential disruptive factors in the individual market, the NAIC may wish to explore alternatives to a straight-forward application of an annual MLR threshold to the individual market, at least in a transition period over the next few years.”

o “…we have concerns regarding the application of the required annual MLR calculation to individual business priced to a lifetime MLR target. Due to the inherent inconsistency between the lifetime pricing methodology used for individual underwritten medical business, including the expected pattern of durational loss ratios, and an annual MLR computation, it may be prudent for the NAIC to swiftly consider options for adjusting the MLR computation for individual medical products.”

National Business Group on Health

o “…we support the inclusion of a broad array of quality improvement activities in this calculation for the insurance market because of our own plans’ positive experiences with these programs, the Federal Employee Health Benefit Plan’s positive experiences with them, the fact that the PPACA expands many of them to the Medicare and Medicaid programs and because these programs will not be available to self insured employers if they are not supported in the marketplace.”

o “Broad inclusion of quality improvement activities in this calculation will help to ensure that these programs continue to be available for the benefit of consumers in the individual and small group markets, and the exchange plans in the future.”

o “Employers and insurers have vast experience with, and rely heavily upon, a range of clinically proven tools and services that promote high-quality health care focused on improving care for the patient (consumer), including: care coordination, patient decision aids, patient support services and health information technology (HIT) for clinical care and population health management. It is vital that these clinically proven services are included in the clinical services/health care quality categories of expenses under MLR to continue to improve health care outcomes for the patient and to reduce harms, disease burden, disparities, waste, and costs.”

o “HHS must ensure that it develops a MLR definition that is aligned with the PPACA efforts to encourage and reward high-quality, integrated health care systems that offer these types of services…”

Physicians Group for Coordinated Care

o “Our experience has shown us that our patients are better served through robust systems of coordinated care that encompass prevention, chronic care management, health care information technology and better physician patient communications.”

o “However, clear guidelines regarding the implementation of this new minimum MLR policy – especially around the definition and calculation of MLR – will be critical to preserving patients’ access to coordinated care, encouraging the use of quality improvement methodologies, and ensuring adequate competition in every market. How MLR is defined will have enormous implications on the coordinated care model.”

o “It will most certainly create incentives (or disincentives) for the acquisition and use of strategies and technologies relating to disease management and care coordination.”

o “If, payments made to physician groups were to be allocated as other than MLR, you could create a disincentive for plans to contract with physician groups. If that were to happen, the model under which physician groups successfully operate would be severely undercut. As a result, patients would experience a disruption in the continuity of their care, the value recognized in the study, referenced above, would be lost, and the foundation for the development of Accountable Care Organizations would be significantly eroded.”

o “…the definition of clinical services should, by necessity, encompass activities such as quality improvement initiatives, medical records review, evaluation of appropriate diagnoses, pharmacy treatments (including medication therapy management), clinical data collection and analysis for quality improvement purposes, care coordination activities, patient education, and many of the supporting clinical IT investments and operating expenses.”

o “Excluding such expenses from the definition of clinical services would create a powerful disincentive for these services, which by their very nature require critical internal resources. Moreover, this would be incongruent with PPACA’s fundamental intent and overarching value-based objectives because it would, in effect, undermine the efficiency and effectiveness of our health care system.”

o “Accordingly, there must be a robust definition of what constitutes such activities (“activities that improve health quality”). We believe this definition should include activities that promote access to care and choice for beneficiaries.”

American Benefits Council

o “In particular, large employers that sponsor group health plans have a strong interest in encouraging activities that improve the quality and appropriateness of the health benefits they offer and the health status of their employees. We therefore urge that your guidance on the calculation of medical loss ratios continue to recognize the importance of these value- added services.”

o “We ask that certain quality measures which are valuable to employers and their employees be included in the MLR calculation, including: wellness programs, disease management programs, fraud, waste and abuse activities, and certain health information technology tools. These quality measures provide valuable services to employees improving their health and the value of the care they receive. Failure to include these measures would increase costs for employers, and could jeopardize programs that are valuable to employees and beneficial to their health.”

o “Everyone benefits when we prevent fraud, waste and abuse, and employers rely on initiatives that intervene when these costly and inappropriate practices are identified in their plans. This not only prevents unnecessary premium increases, but helps to improve patient safety — and therefore the quality of care — for employees. It is important to employers that fraud, waste and abuse detection and prevention activities be included in the MLR definition of quality.”

National Coalition on Benefits

o “Based on our members’ experience in sponsoring and financing employee health benefits, we believe a very important goal of the Department’s guidance on the MLR provision as they apply to fully insured products should be to support and encourage employers to promote higher quality health care and receive greater value for the dollars we spend on health care.”

o “Specifically, we support investments that are made in improving the delivery of appropriate medical services, such as in disease management, care coordination programs and wellness programs, health information technology tools and solutions and fraud and abuse prevention initiatives, to be included as ‘activities that improve health care quality’ in the calculation of MLRs.”

o “These investments are supporting the direct delivery of medical services and should not be categorized as administrative costs, since they improve patient care and health outcomes. The above efforts will improve the value and the delivery of the medical services offered under the plan.”

US Chamber of Commerce

o “The Chamber urges the agencies to approach the divide between ‘quality improvement’ costs and ‘administrative’ costs in a way that will minimize disruption, maximize the kind of activities that improve the quality and affordability of health care, and avoid overly regulating the health care sector.”

o “In general, agencies will fail consumers if this regulation imposing strict medical loss ratios leads to a decline in wellness and case management programs, quality programs, efficiency and adherence programs, programs to combat fraud and abuse, and programs to drive down premiums. The Chamber believes that all of the above are in the best interests of patients and consumers, and thus should not be considered ‘administrative’ on the part of the insurer who is paying for these efforts.”

o “Worst of all, imposition of an overly strict MLR creates a perverse incentive for insurance companies, wherein the only way to increase profits or hire staff or improve infrastructure, etc., will be to increase spending on medical services, thus further increasing costs for everyone involved.”

o “The drawbacks of categorizing disease or case management activities as ‘administrative’ include that if the Departments elect to classify these types of programs as ‘administrative’ expenses, insurers who currently offer disease management programs as an offering in a larger health care package, could elect to cut or even stop offering disease management programs to their clients.”

o “The costs associated with coordinating care are far more affordable than the costs to consumers (in both dollars and in health outcomes) and insurers of silos of care lacking appropriate coordination. Care coordination efforts should not be considered administrative, and they pave the way to improved quality of care.”

o “Many activities undertaken already, and many that will be required as a result of PPACA, include the developing, gathering, aggregation, and analysis of data in order to measure and incentivize quality…If these activities are considered ‘administrative’, insurers will be incentivized to reduce or eliminate their involvement – perhaps a welcome occurrence to providers who do not want to be measured or compared, but certainly a devastating consequence for consumers.”

o Consumers demand that insurers help in efforts to control premium costs, and a key way of doing so is to prevent fraud and abuse…Programs which prevent fraud and abuse improve the quality of care for patients by freeing up funds that would otherwise be wasted, and improve patients’ ability to afford health insurance, as well as their financial freedom.”

o “A sure way to drive up premium costs for consumers, thus making it more difficult for them to obtain insurance, is to categorize broad swaths of cost-­‐control programs as ‘administrative’, thus via the MLR incentivizing insurers to drop these programs…The agencies should not designate programs that are aimed at helping consumers control costs as ‘administrative’ in nature, because these programs make health benefits more efficient, driving quality for consumers.”


o “NCQA strongly supported the statutory provision to include activities that improve health care quality together with clinical services in calculating the medical loss ratio.”

o “In our experience, activities that improve health care quality would encompass expenses related to: wellness and health promotion, care coordination, disease management, accreditation, activities supporting health information technology and reporting quality measures. All of these activities represent investments that can lead not only to higher quality but better value in health care spending on clinical services.”

o “Health plans that invest in prevention – for example through appropriate immunizations and tobacco cessation counseling-will have healthier enrollees, whose spending on health care services should be lower over the long run.”

o “These types of services are clearly intended to improve the health of populations.”


o “We hasten to underscore that in and of itself, imposing minimum MLR requirements does not address many of the public policy concerns surrounding the health system. MLRs do not help contain medical care spending growth, ensure that health care services are appropriate and accurately billed, or address directly the quality and efficiency of health care services.”

o “It would be a disservice to patients and run counter to Congressional intent to mandate the inclusion of many new services as essential health benefits, and then define allowable expenditures for calculating the MLR in a way that makes it difficult or impossible to support these programs while maintaining an MLR that meets an inflexible threshold. In a post reform environment, limiting incentives for health plans to use dollars to better coordinate and manage care and to protect consumers’ premiums through plan integrity efforts would be counterproductive and wasteful.”

o “…we are extremely concerned that narrow MLR definitions would adversely impact spending on such important health plan activities as case management, wellness, disease management, and fraud and abuse prevention programs, among others…If they are somehow diminished due to narrow MLR definitions and enforcement, the quality of care delivery for consumers will deteriorate and health care costs will surely increase.”

o “Many insurer activities are designed to ensure that consumers receive the best care at the best time-which leads to higher overall quality of health…These types of activities have been recognized as quality enhancing by many respected national organizations-such as the National Committee for Quality Assurance, the National Quality Forum and the Leapfrog Group, among others.”

o “A reasonably broad definition of quality improvement activities will allow plans to advance new patient health and wellness programs that ultimately could ‘bend the cost curve’ and help make coverage more affordable.”

o “These activities are not administrative in nature, but rather help to support direct patient care benefits through improved care management, support and activities to reduce health premiums. We encourage HHS to adopt a flexible and reasonably broad definition of these activities so plans are provided incentives to innovate based on improved knowledge of what works well to improve health care quality and that incorporates advances in medical science.”

o “We share the concerns previously expressed by the NAIC and American Academy of Actuaries, among others, that the new MLR requirements may have a potential disruptive impact on health insurance markets-especially individual and small group markets. We are particularly concerned about the impact of the MLR requirements prior to the effective dates of other insurance market reforms, due in large part to historical pricing practices employed in these markets.”

o “It is unlikely that some carriers can reduce the non‐claims costs associated with existing business in order to reduce financial losses in seeking to comply with the MLR. Such a situation might lead some carriers currently active in the individual market to terminate the existing blocks of business and leave the market… If some carriers do exit the individual market, then those insurance plans’ former policyholders may find themselves unable to find new coverage in the individual market for a period of years, and would not be eligible for the new high risk pools created by the PPACA §1101 during the first six months after becoming uninsured.”


o “Through the URAC accreditation process insurers can demonstrate that the service provided meets the NAIC cost category identified.”

o “URAC accreditation could be utilized as independent verification of services which clearly fall into the health care quality expense category.”

o “Accreditation is widely recognized and utilized by both federal and state regulators as a quality assurance process and quality improvement tool.”

o “Accreditation costs are clearly related to ensuring quality in the delivery of health care and should be counted as a direct quality cost for purposes of medical loss ratio calculations.”

o “In addition, URAC is supportive of the conclusions a recent paper developed on minimum loss ratios by the American Academy of Actuaries where they describe case management, disease management, 24-hour nurse hotlines, and wellness programs as more ‘akin to benefits than administrative expenses’ and appropriately factored into the value of benefits for the calculation of medical loss ratio.”

o “These programs and their pharmacy counterparts, drug therapy management and medication therapy management are critical components of population health management programs which support physician-guided health care delivery system which supports, engages, and empowers patients to adhere to treatment protocols, reduce the likelihood of illness and improve health care.”

Pharmaceutical Care Management Association

o “PCMA is concerned that any calculation that does not continue to include all expenses in connection with the adjustment and recording of claims and “cost containment” expenses in the “loss” portion of the ratio will create perverse incentive for insurers to reduce the amount spent on these functions. Such activities, which serve to lower employer premiums and bring value to the health care system as a whole, include accurate and timely claims payment, fraud enforcement and prevention, case management, utilization review and other functions that lower costs or the number of unnecessary services.”

o “Appropriate adjudication of claims and prompt payment to providers are activities that health plans should not be encouraged to curtail, as would happen if they were classified as administrative expenses for purposes of MLR.”

o “Likewise, ‘cost containment expenses’, which are currently defined as a subset of ‘loss adjustment expenses,’ should also be included in the definition as reimbursement for clinical services. These functions, including fraud detection and prevention, serve to lower the costs of health care services and ensure that only valid claims are paid. The functions should continue to be encouraged as they serve the goals — outlined in health care reform — of containing cost and preventing waste while providing broad health care coverage at a reasonable cost.”

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