Obama Administration Takes First Steps Towards Developing Health Care Reform Regulations Impacting the Health Insurance Industry

The Obama administration has begun the arduous task of implementing the recently passed Patient Protection and Affordable Care Act (PPACA), starting with reforms for the health insurance industry. The Departments of Health and Human Services, Treasury, and Labor (collectively, Departments) jointly issued a request for comments in the April 14, 2010 Federal Register on the definitions and standards to be used in implementing the medical loss ratio (MLR) provisions of the PPACA. The Department of Health and Human Services (HHS) also separately issued a similar request for comments regarding the premium rate review provisions of the PPACA.

In addition to the request for comments, HHS Secretary Kathleen Sebelius issued a separate letter to the NAIC seeking information that the PPACA directs the NAIC to provide. In particular, the PPACA directs the NAIC to establish uniform definitions and standardized methodologies for determining and calculating the services that will constitute clinical services, quality improvement, and/or other non-claims costs for purposes of enforcing the MLR provisions of the PPACA. While the PPACA allows the NAIC until December 31, 2010 to establish these definitions and methodologies, Secretary Sebelius states in her letter that she hopes to publish regulations as soon as possible to allow sufficient time for health insurers to incorporate the resulting changes, given that the MLR provisions are effective for plan years beginning six months after enactment of the PPACA. Therefore, the secretary's letter asks the NAIC to provide the information at issue by June 1, 2010.

Medical Loss Ratio

Under the PPACA, for plan years beginning on or after September 23, 2010 (six months after passage of the PPACA) health insurers must begin submitting a report to HHS for each plan year detailing the MLR for that plan. The MLR is essentially the percentage of revenue from a plan's premiums that is spent on reimbursement for clinical services or other activities that improve the quality of health care. Beginning no later than January 1, 2011, a health insurer offering group or individual coverage must provide an annual pro rata rebate to each enrollee if its MLR is less than 85 percent for plans in the large group market or less than 80 percent for plans in the small group or individual markets.

Through the comment process, the Departments are seeking information on a variety of issues, including:

How the new MLR minimums compare to...