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May 2011 St@teside

New Hampshire's and Nevada's Applications for a MLR Adjustment Approved

New Hampshire and Nevada received approval for a medical loss ratio (MLR) adjustment on May 13. New Hampshire requested an adjustment of the 80 percent MLR to a 70 percent MLR standard for 2011, 2012, and 2013. The Center for Consumer Information and Insurance Oversight (CCIIO) within the Centers for Medicare & Medicaid Services (CMS) approved an adjustment of the MLR standard to 72 percent for 2011, 75 percent for 2012, and 80 percent for 2013. Nevada requested an adjustment to a 72 percent standard for 2011. It received an approval for an adjustment to 75 percent for 2011.

In a letter to New Hampshire’s Insurance Commissioner, CCIIO states that there is a likelihood of market destabilization if the 80 percent MLR standard is immediately implemented. According to the available data, if the 80 percent MLR had been in effect in 2010, two of the four insurers would be subject to rebate requirements and experience pre-tax losses, potentially prompting them to withdraw from the market. Nonetheless, CCIIO notes that a 70 percent standard for the next three years is not necessary and a gradual phase in of the 80 percent standard is more appropriate, balancing the interests of consumers, the state, and the insurers. The agency points out that two of the top two issuers in New Hampshire already exceed the 70 percent standard. In addition, according to the data, under a 70 percent MLR standard, two of the smaller issuers would be required to pay rebates in 2011.

While CCIIO also agreed with Nevada’s assertion that the immediate implementation of the 80 percent MLR standard could destabilize the individual market, it expressed concern that two insurers with a combined market share of 24 percent could withdraw from the market. Given that Nevada has no high-risk pool, and the federal pre-existing condition plan (PCIP) has a six-month wait time until one can apply for coverage, the withdrawal of the two insurers could leave a significant number of consumers without coverage. As a result, CCIIO approved an adjustment for Nevada, though slightly higher than the one requested by the state. The agency notes that the average MLR in Nevada’s individual market is 75 percent and only four of the 10 insurers have MLRs lower than 75 percent. In addition, if Nevada were to receive the requested adjustment of 72 percent, consumers would receive $1.1 million less in rebates. CCIIO believes that a 75 percent MLR standard would give insurers time to adjust their business models to increase the portion of premium revenues spent on medical care.

A recent preliminary survey by HealthScape Advisors LLC showed that 46 percent of individual plans surveyed would likely have to give rebates to their policyholders if they do not change their spending patterns in 2011. HealthScape Advisors’ findings are the first to include adjustments to the MLR as put forth by the regulations issued in November 2010 by the U.S. Department of Health and Human Services (HHS). The regulations allow insurers to exclude federal and state taxes as well as licensing and regulatory fees. These provisions make it easier for insurers to meet the MLR requirement and less likely to them to pay rebates.1

Twelve states and Guam have applied for adjustments from the loss ratio regulation for individual plans due to the possibility of market destabilization. Maine was the first state to be granted a waiver and the only state allowed to adjust its individual plan ratio to 65 percent, which will be reviewed again in 2013.

Kansas is the most recent state to apply for a MLR waiver from the federal government. Insurance Commissioner Sandy Praeger submitted a waiver request for the ratio requirement asking for a 70 percent MLR in 2011 that would increase to 73 percent in 2012 and 76 percent in 2013, then hitting the 80 percent target in 2014. CCIIO is currently reviewing the request and the comment due date is being determined.

1BNA Health Policy Report. (Subscription Only). (2011, May 9). MLR Spending Data 2010 Indicate Some Plans Would Have to Make Rebates. Retrieved May 10, 2011 from