Short Takes On News & Events

Insurers May Get Cost Break Thanks To Rocky ACA Rollout

By Jay Hancock and Julie Appleby

March 13th, 2014, 5:20 PM

The Obama administration keeps changing the rules on implementing the Affordable Care Act. Insurance companies keep complaining. But they’re unlikely to grouse about the latest adjustment.

On Tuesday the Department of Health and Human Services signaled its intention to temporarily give insurers a break on the portion of premiums they must spend on medical care or return to policyholders. The switch could shrink consumer rebate checks. But considering what insurers have gone through with balky online marketplaces and shifting regulations, even consumer advocates don’t seem to object.

The change, reported Wednesday by InsideHealthPolicy (subscription required), has to do with the ACA’s medical loss ratio, which requires insurers to spend at least 80 percent of the premiums collected for plans sold in the individual and small group markets on medical care or consumer rebates. The idea was to limit what carriers could devote to profits, administrative costs and CEO salaries to 20 percent of the premium pot.

Some insurers say their administrative costs have soared, however, because of the rocky rollout.

Carriers had to scramble when the administration announced that consumers could keep substandard plans that were previously doomed under the health law. The shift required extra mailings and call-center resources for many insurers. Flaws in the government’s online portals also meant insurers had to find and sign up new customers themselves. Maryland and other states directed frustrated consumers to brokers, who charge insurers commissions.

“Health plans made considerable investments in time, resources and manpower to minimize disruption to consumers caused by all the technical problems of healthcare.gov,” said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, an industry lobby. “Health plans should not be penalized for all the extra work they have done to help consumers through this process.”

As a result, the administration will propose temporarily allowing a higher proportion of premiums to be spent on administrative costs. It’s unclear exactly which expenses will qualify for the exemption and when the rules will be proposed.

“Many in the industry are doing the best they can under very challenging circumstances,” writes Sabrina Corlette, project director at Georgetown University’s Center on Health Insurance Reforms and a frequent industry critic. Increased costs for mailings and call centers, she said, “were compounded when the forms insurers received from the federal government with critical data on new enrollees — called 834s — arrived riddled with errors, or did not arrive at all — requiring manual data entry and one-on-one follow up.”

So for insurers participating on the exchanges, she said, “I didn’t have strong objections” to relaxing the rules on costs.

6 Responses to “Insurers May Get Cost Break Thanks To Rocky ACA Rollout”

  1. While the sympathy for insurance companies is rather moving, the medical loss ratio requirement is black letter law. It is unclear to me where HHS finds the authority to exempt plans whose profits and administrative costs exceed 20 percent of premium from the rebate requirement.

    Also, since the regulation uses the MLR standard for risk corridors. Does blaming the government for added overhead costs absolve plans from making risk corridor payments? If so, this will have an effect on government spending. The President’s budget documents indicate that the government plans to disburse $5.45 billion to some insurers through the risk corridor program for the current plan year and collect the identical amount from other insurers, making the program budget neutral. But if plans can have administrative cost overruns, then presumably they can avoid making risk corridor payments to the government, as well as avoiding paying rebates to their customers.

    Has anyone looked more carefully at the interaction between MLR and risk corridors in light of this latest announcement?

    Doug Badger

  2. James Hope says:

    Black letter law means nothing with regard to PPACA – the executive branch has rewritten law that the legislative branch passed and wrote.

    One could assume that the government will monitor the risk cooridoors and the relaxed MLRs so that ‘double dipping’ at the taxpayer’s expense won’t happen . . . But that may be a faulty assumption.

  3. Ted says:

    Duh? What are risk cooridoors?

  4. KC Rippstein says:

    Don’t forget insurers already got a break on having to pay the 3-year temporary reinsurance fee for 2015 and 2016. “Self-insured self-adminstered plans” are exempt those last 2 years of the temporary fee. Self-insured and self-administered plans would be employers fully capable of adjudicating their own claims (i.e., insurers). That saves each insurer $440,000 for every 10,000 employees and family members enrolled.

  5. It’s really bothersome that all these”fixes” are not openly discussed, or put to a vote in congress. I understand that they would likely never go anywhere if congress were to vote, but I don’t think allowing the president to do whatever he wants sets a great precedent for the future.

  6. Kevin S says:

    KC – Insurance companies sell insurance. By definition, their clients that buy insurance are not “Self-insured.” They pay a premium to an insurance company, transferring the risk of healthcare to the insurance company. It’s true that most insurers will administer self-funded plans for clients at their request, but those plans are not “self administered,” they are administered by a third party – the insurance company.

    Insured plans are not exempt from the transitional reinsurance fee. Only self-insured plans that administer their own claims (without a third party or insurance company administering it for them) are exempt in the second & third years. Most typically, those will be HUGE organizations and Taft-Hartley Plans (aka Union Plans).

    It’s interesting that proponents of this law are eager to uphold the “Black Letters” of the law when it comes to sticking it to insurers and employers, but just as eagerly support the politically motivated “relief” granted by the administration. We all have political opinions, but such naked hypocrisy is laughable.

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