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November 2011 St@teside

New Determinations for Medical Loss Ratio Waiver Requests

To date, 17 states and one territory have applied for an MLR waiver, and 10 states have received a determination, including, most recently, Indiana, Louisiana, and Georgia.

The Center for Consumer Information & Insurance Oversight (CCIIO) within HHS denied Indiana’s and Louisiana’s requests for a medical loss ratio (MLR) waiver. Georgia’s application was approved.

Indiana’s request for an adjustment to the 80 percent MLR standard was denied on November 27.  The state requested that HHS approve a permanent waiver for individual and small group consumer driven health plans (CDHPs). Additionally, the insurance commissioner requested a waiver from the 80 percent MLR requirement through 2014 for individual major medical health carriers, or alternatively, a phase-in of the MLR standard from 65 percent in 2011 to 80 percent in 20141 and an exemption from the MLR requirements for new market entrants and products. The letter cited various reasons why the Indiana individual market could be destabilized if the 80 percent MLR standard is implemented:

  • At least five carriers have withdrawn from the Indiana individual major medical health insurance market since the implementation of the Affordable Care Act (ACA) and another carrier is contemplating a withdrawal.
  • Carriers have notified the Indiana Department of Insurance (IDOI) that many will discontinue sales activities to minimize the risk of not meeting the MLR standard.
  • Consumers would lose access to agents and brokers.
  • If issuers withdraw from the market it could increase premiums at least in the short run.

In its letter to the IDOI, CCIIO indicates that no adjustment to the MLR standard is necessary and addresses Indiana’s arguments, stating:

  • The five carriers that have withdrawn from the Indiana individual market as well as the carriers that have notified IDOI of their intention to withdraw, did so for reasons other than the MLR standard application.
  • Of the nine issuers in the Indiana individual market that are expected to pay rebates, eight would remain profitable after payment of rebates even without making any adjustments to their business models, and thus are not likely to leave the market. One carrier that, based on 2010 data, would be unprofitable, is adapting its business model in 2011, which should allow it to remain profitable after payment of rebates.
  • The IDOI does not provide specific data to support the concern that agents and brokers would leave the market.
  • Given Indiana’s strong regulatory framework and competitive individual health insurance market, even if carriers were to withdraw, consumers should be able to continue to receive adequate coverage at reasonable prices.
  • CCIIO also noted that the MLR regulations allow an issuer with 50 percent or more of its experience from new business to exclude the experience of these policies from MLR calculations for one year. CCIIO believes one year to be a sufficient deferment period as this is what the National Association of Insurance Commissioners (NAIC) has recommended.
  • Finally, since HHS only has the authority to grant an adjustment for up to three years at a time in the individual market, the agency cannot consider requests for permanent waivers.

Louisiana’s application for an adjustment to the 80 percent MLR standard was also denied on November 27. The state had requested an adjustment of the standard to 70 percent in 2011 and 75 percent in 2012.  According to CCIIO’s letter, the application was based on preliminary estimates indicating that the state expected its non-dominant carriers’ aggregated MLR to be 67 percent for 2010.  However, when Louisiana submitted more recent data, it showed that the aggregate MLR of the non-dominant issuers in Louisiana’s individual market in 2010 was 79 percent, just under the 80 percent MLR standard.  This indicates to CCIIO that the issuers have the ability to meet the MLR standard in 2011.

On March 17, Georgia requested an adjustment of the 80 percent MLR to 65 percent in 2011, 70 percent in 2012, and 75 percent in 2013. Georgia argued that:

  • The application of the 80 percent MLR standard would make the individual insurance market less competitive and could destabilize the individual market.
  • Smaller issuers “will not be able to make sufficient adjustments to business models and practices to meet an 80% MLR with or without a phase-in period.”
  • The state indicated that the withdrawal of carriers would be particularly detrimental to people with pre-existing conditions. The state does not have a guaranteed issue requirement, limits on health status rating, issuer of last resort, or a high risk pool. The only option for those with pre-existing conditions is to enroll in the federally administered Pre-Existing Condition Insurance Plan, which would require a six-month wait before enrollment could occur, thus resulting in disruption of care for this population.

CCIIO agreed with Georgia’s arguments, but determined that the adjustment should be lower than requested. Per CCIIO’s approval, the state will have to implement an MLR of 70 percent in 2011, 75 percent in 2012, and 80 percent in 2013, thus reaching the 80 percent requirement of the ACA one year earlier than it had requested.  In its letter, CCIIO stated that 12 of the 18 largest issuers in the individual market had MLRs above 65 percent in 2010 and that even though some of the carriers will have to pay rebates, they have already reduced broker commissions, thereby decreasing the impact on their profits.

12011 – 65.00%
  2012 – 68.75%
  2013 – 72.50%
  2014 – 76.25%
  2015 – 80.00%