The U.S. health overhaul’s mandate that insurers spend 80 percent of premiums on medical care may need to be loosened
to keep companies from quitting the market for people who buy coverage on their own, state regulators said.
Lowering the requirement in some states “may be desirable” at least until 2014, when other provisions in the health-care law will make it easier to find insurance, according to a draft report released Monday by the National Association of Insurance Commissioners. The group of state regulators is expected to send a final recommendation on the rules to U.S. officials by June 1.
The health law passed by Congress in March will force insurers, led by Indianapolis-based WellPoint Inc. and Aetna Inc. of Hartford, Conn., to give rebates to customers next year if companies don’t meet the medical-spending minimums. The commissioners’ draft report said the rule may be too strict for some individual policies, where marketing and administrative costs tend to be higher.
The disruption would depend on “the extent to which issuers would be unable or unwilling to meet the standards, and would therefore withdraw from the market and terminate existing policies,” the memo said. “In the worst case, this could lead to a lack of available coverage.”
Starting in 2014, insurance companies will be banned from denying customers based on their health, and states will open online “exchanges” to assist consumers in buying policies. Until those provisions begin to assist buyers, reducing the medical-cost requirement “in many states” may be the best solution, the report said.
The health-care legislation allows for the suspension of the 80 percent standard if it would destabilize the individual insurance market. The U.S. Department of Health and Human Services is expected to propose the final regulations later this year.
The memo, written by Rick Diamond, an actuary with the Maine Bureau of Insurance, said most insurers will meet the requirement for large- and small-group policies. Compliance will be easier because the law lets companies subtract state taxes on premiums while including as medical costs a range of “activities that improve health-care quality,” the memo said.
Diamond, in a conference call with fellow regulators Monday, said the association may ask for more time to draft its recommendations, or may issue only an initial guidance on June 1, to be updated later this year.
The final recommendation may also exclude as medical spending actions that reduce costs for insurers without improving quality, he said. The expense of negotiating lower rates from doctors would be one example, he said.
“Whatever costs we’re talking about, it seems like if it only does that and has no effect on quality, then it’s not a quality improvement expense,” Diamond said, while adding that the language may still change.