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Insurers vent over spending rules

By Jim Saunders
9/24/2010 © Health News Florida

Insurance Commissioner Kevin McCarty used a hearing today to bolster his arguments that Florida insurers should get leeway in meeting a key requirement of the federal health-reform law.

If implemented as scheduled on Jan. 1, the rule could disrupt the state's market for individual health policies, McCarty says, and thus should be phased in. Insurance-industry officials backed that proposal.

"Common-sense, practical implementation of health-care reform is critical,'' said Mark LaBorde, president of the Jacksonville and Tampa markets for Aetna.

LaBorde and Brad Bentley, vice president of underwriting for AvMed Health Plans, said the requirement for a high "medical-loss ratio" -- the percentage of the premium spent on medical services -- could reduce competition in the individual insurance market.

Bentley said he fears that carriers "will be placed in the untenable position of reducing services, eliminating services" or leaving the market.

Mike Corne, of Golden Rule Insurance Co., said the requirement could particularly hurt small or start-up carriers, which can't spread administrative costs over as many policies.

Beginning in 2011, insurers in the individual and small-group markets will have to spend 80 percent of premium dollars on medical care. The required ratio will be 85 percent in the large-group market.

If insurers do not meet the requirements, they will have to rebate money to customers. Congress included the ratios in the Patient Protection and Affordable Care Act to make sure carriers don't divert too much money to profits and overhead.

After a meeting Wednesday at the White House with other insurance commissioners, McCarty said he is trying to build a case that federal health officials should approve phasing in the individual-market requirement in Florida. He did not provide details about how such a phase-in would work.

But after their meeting, the National Association of Insurance Commissioners released a draft recommendation  that says federal and state taxes should not be included in the overhead when calculating the medical-loss ratio. That would make it easier for insurers to hit the 80- or 85-percent requirement.  

The hearing today by the Office of Insurance Regulation and the Florida Health Insurance Advisory Board will take comments about the medical-loss ratio to present to the U.S. Department of Health and Human Services.

"As insurance commissioner, I am concerned about the ability of our individual carriers to meet that (80 percent) standard in a seamless, non-disruptive manner,'' McCarty wrote in a memo to insurers about the hearing.

Bob Lotane, a spokesman for the National Association of Insurance and Financial Advisors-Florida, said the individual market is already under "stress.'' He said a high medical-loss ratio could lead to insurers reducing the policies they sell.

Also, agents are worried that a high medical-loss ratio would limit the amount of money available for commissions. Lotane said consumers would end up getting hurt if agents no longer find it economically feasible to sell health policies.

"If the agent is squeezed out of it, then the consumer is going to lose,'' Lotane said.

Efforts to ease the ratio, however, could face opposition from consumer groups. Brad Ashwell, a Tallahassee-based advocate for the Florida Public Interest Research Group, said any phase-in plan should be as narrow as possible and end quickly.

"It (the medical-loss ratio) is a cost issue,'' Ashwell said. "We're looking at whether we're getting a good bang for our buck when we're buying health insurance.''

The Friday hearing comes a day after several provisions of the federal health-reform law began taking effect. Among those provisions: requiring that parents be allowed to keep adult children up to age 26 on their health plans, and barring insurers from charging co-pays and deductibles on preventive health services.

The medical-loss ratios will not take effect until Jan. 1, and detailed rules remain to be finalized. But the issue has drawn heavy attention from the insurance industry and regulators.

Iowa Insurance Commissioner Susan Voss this week asked for a federal waiver of the individual-market ratio until 2014, saying small carriers need a phase-in period to be able to comply. Maine asked for a waiver earlier.

In Florida and other states, agents have been particularly outspoken about the effects of the ratios. McCarty and Deputy Insurance Commissioner Mary Beth Senkewicz also have repeatedly expressed concerns about whether agents would get squeezed by the requirements.

--Capital Bureau Chief Jim Saunders can be reached at 850-228-0963 or by e-mail at jim.saunders@healthnewsflorida.org.