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Norm's Desk

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HHS Denies Texas' Appeal on MLR Rules

If you are an avid reader of the Dec Page, you are aware of the impending Medical Loss Ratio (MLR) rules requiring that health insurance carriers spend at least 80% (for small groups and individuals) or 85% (for large groups) on claims and limiting their overhead costs to no more than 20% or 15% of their revenue.

The Texas Department of Insurance had appealed to HHS for a delay in the implementation due to the impact it would have on small to medium size insurance carriers in Texas.  725,000 Texans purchase individual health coverage, and almost two-thirds of them would qualify for rebates based on 2010 data.

What could be wrong with that?  I have spent a few thousand dollars at Lowe's over the last year building a garden at my house and purchasing patio furniture and other items.  Wouldn't it be awesome if the federal government forced Lowe's to give a dividend for every dollar in mark-up they made that exceeded 20%?

But, what if there were no Lowe's to go back to and buy more "home-improvement" products?  What if Lowe's decided that it really can't make sufficient profit by holding onto only 20% of its revenues?

So, I get a one-time benefit and but I lose the pleasure of strolling through Lowe's finding stuff-that-I-cannot-live-without-but-was-not-aware-of-five-minutes-before.

What does this advertisement for Lowe's have to do with MLRs?  Well, the Texas Department of Insurance has found for 2010, the rebates in Texas would total $158 million wiping out 99.7 percent of the underwriting profits for the entire individual-policy market.  A survey of 26 firms found that 11 of them, serving 47,000 Texans, might have to stop offering insurance policies in Texas.  I seem to recall the phrase "If you like your plan, you will be keeping your plan" repeated again and again in 2009.  

Accordng to the Austin-American Statesman, HHS described the Department of Insurance's fears as "overblown."  HHS believes that almost all Texas insurers meet the 80 percent threshold, have said they will not leave the Texas market, or are profitable enough to afford the rebate payments.  

That's comforting.  I especially like the part about being "profitable enough afford" the rebate.  Why is that a consideration?

The TDI issued the following response to HHS's denial:


In denying Texas' application, HHS stated that it took into account each carrier's MLR and profitability in making its decision and asserted that few issuers are reasonably likely to exit the individual market in Texas.  The Department's application clearly showed otherwise.  Of the 34 Texas carriers subject to the law, 23 will pay rebates based on 2010 data; at the 80 percent MLR threshold, these rebates will absorb the net underwriting profit for the entire individual market.

HHS' decision does not allow sufficient time for carriers to adjust their operating models, nor does it contemplate the effects on small and mid-level carriers that lack the resources and administrative economies of scale to compete in the individual market under PPACA.  A reasonable, responsible phased-in approach would still have afforded rebates to Texas consumers without risking disruption, dislocation and withdrawal of carriers in the individual market.  The Department will continue to work to ensure the availability of high-quality, high-value health insurance to this important underserved segment of the market.



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