Focus on Health Care Reform: NAIC “Blanks Form” for Reporting Medical Loss Ratio

The Affordable Care Act (ACA) requires insurers to report annually to the Department of Health and Human Services (DHHS) the percentage of health care premium dollars spent to reimburse providers for health care services and on quality improvement measures – known as the Medical Loss Ratio (also referred to as the Medical Care Ratio).

The ACA also limits the medical-loss ratio for large group health insurance plans to 85% and 80% for small and individual group products (Read more about this in a related article from June 2010). The law specifically requires the National Association of Insurance Commissioners (NAIC) to develop recommendations for implementing these medical-loss ration provisions.

In response, the NAIC Executive Committee/Plenary approved the final version of a medical-loss ratio “blanks form” earlier this year. Significant debate was held to determine what types of expenses can be considered “quality improvement” and not “administrative and included in the loss ratio expense category.

The medical-loss ratio blanks proposal requires insurers to document expenditures through a transparent process.  Full disclosure of how premiums are spent will empower physicians and patients to make more informed decisions, improve their ability to negotiate contracts and choose the best plans.

With a clearly defined and strict limitation on how administrative expenses are spent, insurers can no longer spend excessive amounts of premium dollars on executive salaries, marketing and other costs not related to patient care.

The NAIC began drafting recommendations for the medical-loss ratio “blanks form” and draft regulation in April. The blanks form is the actual worksheet submitted by an insurance company to report financial data to state insurance commissioners. The form collects data from individual and small-group employers and large-group employers as follows:

  • Income and expenses including but not limited to total and types of premiums earned; total and types of claims incurred; general and administrative expenses; incurred incentives pools and bonuses; deductible fraud and abuse detection and recovery expenses
  • Documentation of how administrative expenses are spent, including salaries, outsourced services, data processing software, accreditation, taxes, licenses and fees; this data is collected for separate types of insurers, including individual and small-group employers and large-group employers
  • Information about quality improvement expenses, including allowable health information technology costs; expenses that have a nexus to patient benefit are considered “quality improvement”; expenses considered to not have a direct patient benefit nexus and expressly excluded include retrospective and concurrent utilization review, fraud prevention activities unrelated to detection and recovery, costs related to provider networks and contracting fees, marketing and credentialing

Upon receipt of the blanks form, insurance commissioners will review the data to calculate whether the insurer has complied with the medical-loss ratio requirements. If an insurer spends less than its allocated 80 or 85 percent of premium dollars on patients, the ACA requires the insurer to rebate the enrollee for the amount in excess of the statutory percentage.

The NAIC continues to develop recommendations for the final regulation and implementation of the new Medical Loss Ratio standards brought about by the ACA.


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