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CMS Releases MLR Rule. Seeks Comments!

Federal HHS just issued an interim final rule governing the Medical Loss Ratio (MLR) portion of the ACA.

Generally, MLR is the restriction on the proportion of premium dollars that insurance companies can spend on profits and administrative expenses. Put the other way, MLR is the requirement that insurance companies spend a certain percent of every premium dollar on patient care. For more background on MLRs, see our previous blog post and Healthcare.gov’s MLR Fact Sheet.

The Interim Rule

The rule announced today will require health insurance companies to spend 80 to 85 percent of health care insurance premiums on healthcare services instead of advertising or executive compensation.

Plans in the small group or individual market must spend 80%, and plans in the large group market must spend 85%. Plans that don’t meet these requirements must provide a rebate to insureds.

The rule generally applies to health plans beginning January 1, 2011 offering group or individual health insurance coverage. States can still set higher MLRs.

Some Loopholes

Under the rule, any state may ask federal health officials for exemptions on behalf of health plans sold to individuals, a relatively small but expensive part of the insurance market, if they can demonstrate that meeting the rules would cause such plans to stop doing business within the state. Already, HHS officials said, four states have requested such “adjustments,” as the exemptions are being called. This is according to today’s Washington Post.

In addition, the rules say that two small parts of the insurance market — bare-bones coverage known as “mini-med” policies and policies sold to Americans living abroad — will not have to meet the standards for at least a year.

CMS Seeking Comments

If you have thoughts or suggestions on today’s interim rule, you may submit electronic comments at Regulations.gov. Follow the instructions under the “More Search Options” tab.