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November 2011 St@teside

Completed MLR Waiver Applications Await CCIIO Determination

Applications for a medical loss ratio (MLR) waiver from five states have been deemed completed in recent months. Kansas, Oklahoma, Texas, Florida, and Michigan received letters from the Center for Consumer Information and Insurance Oversight (CCIIO) deeming their applications complete. Wisconsin became the latest state to request a waiver, but its application has not yet been deemed complete.

The Kansas  Insurance Department (KID) application is requesting that HHS give insurance companies three additional years to fully comply with the MLR requirement, reaching the 80-percent threshold in 2014 rather than in 2011. Currently the minimum medical loss ratio for the individual health insurance market is 55 percent.  KID justifies its request on the need to: 1) to give insurance companies time to adjust their business practices to comply with the requirement, 2) ensure that Kansas has well-qualified, fairly compensated health insurance agents and brokers, and 3) “maximize the opportunity for new entrants into the Kansas market and new option for Kansans.”

Oklahoma’s Insurance Commissioner John D. Doak sent a letter to CCIIO requesting a 65 percent MLR requirement in 2011, 70 percent in 2012, and 75 percent in 2013.  According to the letter, the transition period would allow carriers servicing rural counties time to adjust their distribution and administrative expenses and maintain stability in the individual health insurance market.

Texas is requesting a three-year phase-in to the 80 percent standard.  The 2010 average MLR was 70.8 percent for carriers subject to the MLR requirements. Only seven out of 26 carriers had an MLR of 80 percent in 2010. The MLR adjustment application request states that “[h]ad the 80% MLR requirement been in place in 2010, Texas carriers would have refunded $158.1 million, virtually eliminating the total net underwriting profits of $158.6 million.”

In its letter to HHS, the Florida Office of Insurance Regulation (OIR) proposes to delay implementation of the MLR requirements until 2014.  OIR is requesting that the state continue to apply the existing state MLR standard of 65 percent for health insurers and 70 percent for health maintenance organizations until 2014. The state believes that issuers will exit or stop selling new business in the individual market.  Four carriers in the individual market have given notice that they plan to withdraw from the individual health insurance market.

Michigan Insurance Commissioner Kevin Clinton requested that HHS lower the state’s MLR requirement to 65 percent in 2011, 70 percent for 2012, and 75 percent for 2013.  Currently the MLR for the individual policies is 65 percent for policies rated by age as well as optionally/collectively renewable policies and 55 percent for all other policy types.  The request stated that:

  • Absent an adjustment, 14 companies would have to pay rebates to their customers;
  • Eight of the 14 companies would have to pay rebates in excess of their after-tax profit for 2010;
  • Although no companies have indicated plans to exit the individual market, two have recently chosen to exit the market for other reasons; and
  • Carriers would reduce brokers’ commissions before the agents had the time to adjust their own business practices, thereby reducing customers’ access to their services.

Wisconsin Insurance Commissioner Theodore K. Nickel sent a letter to HHS requesting approval for a three-year phase-in of the MLR standard from 71 percent for 2011, 74 percent for 2012, and 77 percent for 2013. According to the letter, the state is concerned with the magnitude of the rebates and the fact that carriers from Wisconsin have made statements to the SEC indicating that the 80 percent MLR standard along with other ACA provisions could destabilize operations and reduce competition.  The letter points to the withdrawal of two carriers—American Community Mutual, which left the market in April 2011, and Consumers’ Life Insurance Company, which will leave the market on January 1, 2012—as evidence of the impact of potential rebates on the market.