Health Insurance Regulators Define Loss Ratios

The National Association of Insurance Commissioners (NAIC), a group comprising health insurance regulators from the various states, agreed Tuesday on definitions of the kinds of health insurance expenditures that constitute patient care and quality improvements. These definitions are crucial, because the new health care insurance reform legislation signed into law by President Obama in March will penalize health insurance companies if they spend less than a certain percentage of the premiums they collect—known as the loss ratio—directly on patient care.

The Patient Protection and Affordable Care Act, the national health care insurance law, mandates that all health insurance providers must spend a minimum of 80% of premium receipts from an individual or small-group health plan on health care. Insurance companies must spend fully 85% of premiums from large group plan on patient care.

The decision of what types of spending count toward patient care and what is excluded was left to the NAIC. On Tuesday, the NAIC adopted a definition of care that everyone—consumers and health insurance industry professionals alike—consider to be narrow.

Ethan Rome, the executive director of Health Care for America Now (HCAN), a consumer advocacy group, lauded the NAIC’s action. “Today the NAIC took a step toward ending the health insurance companies’ stranglehold on our health care,” Rome declared. “The top state insurance regulators from across the nation voted to put patient care above insurance company profits.”

Insurance industry executives disagreed. Karen Ignagni, the president and CEO of America’s Health Insurance Plans (AHIP), said that the definitions are far too limited, excluding fraud detection and other measures that result in tangible benefits to the insured. The narrow definitions, Ignagni said, “could have the unintended consequence of turning-back-the-clock on efforts to improve patient safety, enhance the quality of care, and fight fraud.”

Prior to the vote, AHIP sent a letter to the NAIC, asking regulators to include several specific practices under the rubric of quality improvements: claim reviews, “a key tool in targeting the dangerous overutilization of services, falsification of medical records, and medical identity theft;” the adoption of new medical billing codes that would “improve the ability of health plans to share clinical data among clinicians for quality improvement and care coordination activities;” review of redundant procedures, such as medical imaging, which are widely overused; and wellness incentives, which health care insurance reform law itself calls for.

By forcing the insurers to pay for these programs as part of their operational expense, the NAIC is hamstringing innovation, says Ignagni. “Preserving patients’ access to high-quality health care services is essential if the key goals of health care reform are to be achieved.”