CHICAGO – Insurance commissioners are moving forward with recommendations that require health plans to spend at least 80 percent of premium dollars on medical costs, a key tenet of the health care overhaul signed into law five months ago.

The National Association of Insurance Commissioners, which writes model laws and regulations, last week approved a proposed financial disclosure form that insurance companies must file, beginning next year, outlining what health plans can classify as a medical service. This “medical-loss ratio” form is what health plans file annually to state insurance regulators.

The association’s recommendations for the medical-loss ratio, the percentage of premium revenues that pay for medical services, will be used by U.S. Health and Human Services Secretary Kathleen Sebelius as she implements the regulations this year.

Under the new federal law, individual policies and small-group insurance products sold to businesses with 50 or fewer workers will have to spend 80 percent of health plan enrollee premiums on medical costs. Policies for groups with more than 50 workers will have to spend at least 85 percent of health plan subscriber premiums on health costs.

Health plans that do not provide the percentage of medical care service required by the law will have to pay a rebate to health plan subscribers.

“Medical-loss ratios are important because they demonstrate to the employer or family that premium dollars are being used on health care,” said Illinois Department of Insurance Director Michael McRaith, a leader in the association.

The regulations administered by insurance commissioners affect state-regulated health plans. Such plans will be the primary choice for uninsured Americans as they look to purchase health benefits once states have exchanges up and running by 2014.

In the meantime, insurance plans will begin providing information on their medical-loss ratios next spring based on 2010 financial information. Rebates, however, will not have to be paid until after their 2011 financial information is submitted in the spring of 2012, the association said.

Medical costs figured into the ratio include expenses for physician and hospital care as well as costs related to quality, such as a 24-hour nurse call line “that is used to manage a chronic condition,” said Kansas Insurance Commissioner Sandy Praeger, who heads the association’s health insurance and managed-care committee.

The insurance industry wants the costs of ferreting out fraud and abuse to be included as a medical expense rather than as an administrative cost.

“Fraud and abuse has a direct impact on the quality and safety of patient care,” said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, a lobby for large health insurance companies like UnitedHealth Group, Humana Inc. and Health Care Service Corp., parent of Blue Cross and Blue Shield plans in Illinois, Texas, New Mexico and Oklahoma.

Zirkelbach said health plans are hoping insurance commissioners will include fraud and abuse expenses when they make recommendations to Sebelius.


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