Getting Your Money's Worth on Health Insurance
GOOD MORNING. WE APPRECIATE THE KAISER FOUNDATION'S HOSPITALITY AND APPRECIATE YOU BEING WITH US HERE ON A MONDAY MORNING I'M PLEASED TO BE JOINED BY SEVERAL OF MY HHS COLLEAGUES BY SEVERAL OTHER IMPORTANT PARTIES TO ANNOUNCE THE RELEASE OF A NEW CONSUMER PROTECTION AND I'M GRATEFUL TO SHARE THE STAGE WITH SOME FOLKS WHO HAVE WORKED VERY HARD WITH US TO MAKE THIS NEW CONSUMER PROTECTION A REALITY. JANE KLINE IS THE INSURANCE COMMISSIONER FOR THE STATE OF WEST VIRGINIA AND THIS YEAR'S PRESIDENT OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS. LYNN QUINCY IS WITH THE CONSUMER'S UNION. AND PROFESSOR TIM YOST OF WASHINGTON AND LEE UNIVERSITY SCHOOL OF LAW IS A LEADING VOICE FOR PATIENT'S RIGHTS OF PROTECTION AND MY COLLEAGUE, JAY, IS ALSO ON STAGE AND I'LL INTRODUCE HIM IN A FEW MINUTES. THIS IS A VERY IMPORTANT DAY.
ON MARCH 23, PRESIDENT OBAMA SIGNED INTO LAW THE AFFORDABLE CARE ACT. HISTORIC PIECE OF LEGISLATION THAT PUTS PATIENTS BACK IN CHANGE OF -- CHARGE OF THEIR CARE AND IMPROVES THE QUALITY AND AFFORDABILITY OF CARE FOR ALL AMERICANS PROVIDING PATIENTS NEW RIGHTS AND NEW RESPONSIBILITIES. IT GETS RID OF SOME OF THE WORST INSURANCE PRACTICES RIGHT AWAY. AND THE ACT INVESTS IN STATES TO HELP THEM DO THE IMPORTANT WORK OF REVIEWING PREMIUM INCREASES AND ASSISTING CONSUMERS AS THEY NAVIGATE WHAT IS OFTEN A VERY COMPLICATED HEALTH CARE SYSTEM. WE CREATED A STATE-OF-THE-ART WEBSITE, HEALTHCARE.GOV THAT EMPOWERS CONSUME TOURS SHOP FOR HEALTH PLANS THAT BEST SUITS THEMSELVES AND THEIR FAMILIES AND OVER THE LAST 8 MONTHS, WE HAVE BEEN WORKING VERY HARD WITH PARTNERS IN THE STATES AND WITH ADVOCACY GROUPS AND OTHERS ACROSS THE COUNTRY TO BRING GREATER TRANSPARENCY AND ACCOUNTABILITY TO OUR HEALTH INSURANCE SYSTEM. TODAY, WE ARE ANNOUNCING THE RELEASE OF THE MEDICAL LOSS RATIO REGULATIONS THAT WILL GUARANTEE THE CONSUMERS GET THE MOST OUT OF THEIR PREMIUM DOLLARS.
FOR TOO LONG, CONSUMERS HAVE WATCHED THE PREMIUMS RISE MORE RAPIDLY THAN WAGES AND MORE RAPIDLY THAN THE COST OF ANY OTHER GOODS AND SERVICES SOLD IN THIS COUNTRY. AND YET, CONSUMERS AND EMPLOYERS WHO HELPED FOOT THE BILL FOR COVERAGE HAVEN'T ALWAYS RECEIVED THE QUALITY HEALTH CARE THEY EXPECT AT THAT PRICE. THE INCREASES ARE PARTIALLY DUE TO RISING MEDICAL COSTS AND THE UTILIZATION OF SERVICES. BUT THEY ARE ALSO DUE TO RISING INSURANCE COMPANY ADMINISTRATIVE COSTS, MARKETING COSTS AND IN SOME CASES LARGER SALARIES. THOSE OVERHEAD COSTS CONTRIBUTE LITTLE OR NOTHING TO THE CARE OF PATIENTS AND TO THE HEALTH OF AMERICANS.
WHILE SOME LEVEL OF ADMINISTRATIVE COST IS CERTAINLY NECESSARY, WE BELIEVE THAT THEY HAVE GOTTEN OUT OF HAND, AND THAT'S GOING TO CHANGE STARTING IN 2011. THE MEDICAL LOSS RATIO REGULATIONS GO INTO EFFECT NEXT YEAR. INSURERS MUST SPEND AT LEAST 80% OF PREMIUM DOLLARS ON DIRECT MEDICAL SERVICES AND QUALITY IMPROVEMENTS. DOCTOR VISITS, TRIPS TO THE HOSPITAL, OUTPATIENT SURGERY, PREVENTION AND OTHER ACTIVITIES DESIGNED TO IMPROVE THE QUALITY OF CARE. IN THE CASE OF INSURANCE PLANS FOR LARGER EMPLOYERS, THE REGULATIONS REQUIRE SPENDING AT LEAST 85% OF THE PREMIUM DOLLAR ON PROVIDING CARE AND QUALITY IMPROVEMENT. AND IF AN INSURED DOESN'T MEET THE 80% OR 85% STANDARD IN GIVING YEARS, THEY WILL BE REQUIRED TO SEND THEIR PLAN MEMBERS A REBATE BASED ON EXCESS SPENDING.
WE AT HHS, WILL COLLECT DATE AT FOR A YEAR AND REBATES WILL BEGIN TO ARRIVE IN 2012. NOW I RECOGNIZE THAT SOME OF THAT SOUNDS A LITTLE TECHNICAL, SO I WANT TO GIVE YOU A PRACTICAL EXAMPLE. TODAY, THE AVERAGE INSURANCE PLANS FOR A FAMILY OF 4 COST $13,250 A YEAR. BEFORE THE AFFORDABLE CARE ACT, AN INSURANCE COMPANY COULD SPEND AS LITTLE OR AS MUCH OF THAT MONEY ON HEALTH CARE AND QUALITY AS IT SAW FIT. WITH THE NEW FORMULA IN THE AFFORDABLE CARE ACT, INSURANCE PLANS FOR SMALL EMPLOYERS ARE INSURANCE COMPANIES SELLING POLICIES TO INDIVIDUALS WILL HAVE TO SPENT 80% OF THOSE COLLECTED PREMIUM DOLLARS ON HEALTH CARE. JUST OVER $10,600 OF THE $13,250 PREMIUM. AND IF YOU AND YOUR FAMILY ARE INSURED BY A LARGE GROUP PLAN, THE INSURANCE COMPANY WILL NOW SPEND AT LEAST $11,260, OR 85%, ON HEALTH CARE AND QUALITY.
THAT IS A MUCH BETTER RETURN ON FAMILIES INVESTMENTS. IN TODAY'S MARKET, SOME INSURERS REPORT SPENDING AS LITTLE AS 60% OF THEIR PREMIUM DOLLARS CARE AND UNDER THESE RULES, UNLESS THOSE PLANS CHANGE THEIR SPENDING HABITS, THEY HAVE TO REFUND NEARLY $3500 TO EVERY FAMILY THEY INSURE. THE MEDICAL LOSS RATIO WILL ENCOURAGE MORE INSURERS WORKING HARD TO CONTROL THEIR OVERHEAD AND MAXIMIZE WHAT THEY SPEND ON CARE. AND THAT MEANS BETTER BENEFITS FOR CONSUMERS AND THEIR FAMILIES. IT MAY PRODUCE LOWER COSTS FOR YOUR INSURANCE OR REBATES TO YOUR FAMILIES. AND THAT IS WHAT WE CALL REAL RESULTS FOR REAL AMERICANS. UNFORTUNATELY, NOT ENOUGH TIME IS SPENT HERE IN WASHINGTON ON AMERICAN FAMILIES AND THESE RULES ACTUALLY REMIND US WHAT HEALTH REFORM IS ALL ABOUT. NOW WE COULDN'T HAVE CREATED THESE REGULATIONS WITHOUT THE HARD WORK OF OUR NATION'S STATE INSURANCE COMMISSIONER. AND I'M A LITTLE BIAS. I AM A FORMER INSURANCE COMMISSIONER, MYSELF.
AND I'M IMMENSELY PROUD OF THE WORK THAT THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS DID AT THE DIRECTION OF CONGRESS IN HELPING TO WRITE THESE RULES. NEVER BEFORE HAS THERE BEEN A STRONG PARTNERSHIP BETWEEN STATE COMMISSIONERS AND FEDERAL GOVERNMENT WORKING CLOSELY TO MAKE SURE THAT INSURANCE COMPANIES DELIVER MAXIMUM HEALTH BENEFITS FOR THE PREMIUM DOLLARS THEY COLLECT. STATE COMMISSIONERS SPENT MONTHS LISTENING TO ALL VIEWS, STUDYING THE EVIDENCE, DOING OUTSIDE STUDIES AND COMING UP WITH COMMON-SENSE RECOMMENDATIONS THAT HELP TURN THE LAW INTAKES. ACTION. AND THE REGULATIONS WE RELEASE TODAY BY HHS, FOLLOW ALL THE RECOMMENDATIONS AND INTENT OF THE FINAL GUIDANCE CREATED BY THE NIAC. NOW THE NEEDS OF CONSUMERS WITH THOSE OF INSURERS SO WE CAN PRESERVE WHAT IS GOOD ABOUT OUR CURRENT SYSTEM AND BEGIN TO CHANGE WHAT IS NOT WORKING WELL. NOW THIS WAS A DAUNTING TASK AND COMMISSIONERS DID A DIFFICULT JOB UNDER ENORMOUS PRESSURE.
AND ISSUED THEIR RECOMMENDATIONS WITH UNANIMOUS VOTES. AND I'M PROUD TO HAVE THE NAIC AS OUR GREAT PARTNERS. NOW I'M GOING TO TURN THE PODIUM OVER TO JAY, THE DIRECTOR OF OUR OFFICE OF CONSUMER INFORMATION AND INSURANCE OVERSIGHT TO PROVIDE SOME ADDITIONAL DETAILS ABOUT THE RULES BEING RELEASED TODAY. JAY AND I WERE COMMISSIONERS TOGETHER. HE COMES TO HHS WITH PRACTICAL REGULATORY EXPERIENCE FROM BOTH MISSOURI AND NEW JERSEY AND HAS DONE A GREAT JOB PUTTING TOGETHER THESE REGULATIONS. THANK YOU, MADAM SECRETARY. I'D LIKE TO ECHO THE SECRETARY'S WORDS, PARTICULARLY ABOUT THE NAIC. THE PROFESSIONALISM OF THE NAIC STAFF, THE EXPERTISE THAT THEY HAVE, THE OPENNESS OF THE PROCESS THAT THEY FOLLOWED OVER THE PAST SEVERAL MONTHS, AND THE PATIENCE THAT THE COMMISSIONERS AND PARTICULARLY PRESIDENT KLINE HAVE SHOWN OVER THE PAST SEVERAL MONTHS, ARE REALLY AMAZING. SO WE CAN'T THANK YOU ENOUGH FOR THAT.
I'D ALSO LIKE TO THANK OUR STAFF FOR THE STUNNING NUMBER OF HOURS THEY HAVE WORKED, PARTICULARLY OVER THE LAST SEVERAL WEEKS AND THE AMOUNT OF WORK THAT THEY HAVE DONE. WE REALLY ARE IN YOUR DEBT. IN CRAFTING THE STANDARD, IT WAS NECESSARY BOTH TO ENSURE THAT CONSUMERS RECEIVE VALUE FOR THEIR DOLLAR AND TO MAINTAIN A COMPETITIVE INSURANCE MARKET. THIS REGULATION ACCOMPLISHES BOTH THOSE GOALS. WE THINK THE MEDICAL LOSS RATIO STANDARD THEREFORE IS A BIG WIN FOR THE AMERICAN PEOPLE. IT WILL RESULT IN PREMIUMS LOWER THAN THEY WOULD OTHERWISE BE, BETTER BENEFITS OR REBATES OR A COMBINATION OF ALL 3. IT WILL PROVIDE AN UNAVOIDABLE INCENTIVE FOR INSURERS TO MINIMIZE THEIR ADMINISTRATIVE COSTS.
AND EVEN MORE IMPORTANT, IT WILL PROVIDE AN INCENTIVE FOR INSURERS TO MAXIMIZE QUALITY AND TO DRIVE DOWN UNDERLYING HEALTH CARE COSTS BECAUSE INSURERS WILL NOW HAVE LESS OF AN ECONOMIC INNOCENT TESTIFY SPEND LARGE AMOUNTS OF MONEY ON SEEKING OUT THE HEALTHY, AND AVOIDING THE LESS HEALTHY. INSTEAD, THEY WILL HAVE A ECONOMIC INCENTIVE TO COMPETE BESIDES PRICE AND QUALITY. THE MEDICAL LOSS RATIO REGULATION WILL ALSO CREATE MORE TRANSPARENCY. TO THE WILL ENABLE INSURANCE POLICY HOLDERS TO KNOW HOW MUCH THEIR INSURANCE COMPANY SPENDS ON HEALTH CARE, HOW MUCH THE COMPANY SPENDS ON QUALITY IMPROVING ACTIVITIES AND HOW MUCH IT SPENDS ON VARIOUS TYPES OF ADMINISTRATIVE EXPENSES. AND I BELIEVE THE HEALTH INSURANCE INDUSTRY TODAY IS WELL POSITIONED TO MEET THE NEW STANDARDS. SO MANY INSURERS, PROFITABILITY IS AT AN ALL-TIME HIGH AND THE INDUSTRY'S TOTAL CAPITAL, THE CURB AN THEY HOLD OVER AND ABOVE THE NECESSARY TO PAY CLAIMS S ALSO AT AN ALL-TIME HIGH.
AS A RESULT, INSURANCE COMPANIES SHOULD BE ABLE TO MEET THE MINIMUM STANDARDS LAID OUT IN THIS REGULATION. THE BOTTOM LINE IS THIS, THE MEDICAL LOSS RATIO STANDARD GIVES ALL INSURANCE POLICY HOLDERS BETTER VALUE FOR OUR HEALTH CARE DOLLARS. I'D NOW LIKE TO TURN IT OVER TO THE PRESIDENT OF THE NAIC, WITHOUT WHOSE WORK OVER THE LAST SEVERAL MONTHS, THIS WOULD NOT BE POSSIBLE. THANK YOU JAY AND MADAM SECRETARY FOR THE OPPORTUNITY TO BE HERE. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT CALLED UPON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS TO DEVELOP THE DEFINITIONS AND METHODOLOGIES OF CALCULATING THE MEDICAL LOSS RATIO. THE NATION'S STATE INSURANCE REGULATORS TOOK THIS TASK VERY SERIOUSLY, RECOGNIZING THE IMPACT THIS NEW REGULATION COULD HAVE ON THE VALUE OF INSURANCE AND ON THE INSURANCE MARKETPLACE.
THROUGH AN OPEN AND VERY TRANSPARENT PROCESS, THAT INCLUDED HOURS OF OPEN CONFERENCE CALLS, OVER THE PAST 6 MONTHS, HUNDREDS OF COMMENTS AND AMENDMENTS PARTICIPATION BY MANY INTERESTED PARTIES, THE NAIC COMPLETED ITS WORK IN OCTOBER AND SUBMITTED IT TO THE SECRETARY. WE ARE PLEASED TO HEAR THAT THE SECRETARY HAS CERTIFIED THE WORK PRODUCT THAT WAS DEVELOPED BY THE NAIC WITH THE INPUT OF ALL STAKEHOLDERS AND IT HAS BEEN INCLUDED IN THE FINAL REGULATION WITHOUT SIGNIFICANT MODIFICATION. THE NAIC WORKED CLOSELY WITH CONSUMER GROUPS, AGENTS AND BROKERS, THE INSURANCE INDUSTRY, PROVIDERS, FEDERAL OFFICIALS AND MANY OTHERS THROUGHOUT THE PROCESS AND WE KNOW THAT THE WORK IS NOT REALLY DONE. WE WILL ALL NEED TO CONTINUE WORKING TOGETHER TO ENSURE THAT THE MEDICAL LOSS RATIO REGULATION IS EFFECTIVE BUT DOES NOT SO DISRUPT THE INSURANCE MARKETPLACES SO AS TO MAKE INSURANCE UNAVAILABLE.
THE LAW WISELY PROVIDES THE SECRETARY WITH THE AUTHORITY TO MAKE NECESSARY ADJUSTMENTS TO THE MEDICAL LOSS RATIO PERCENTAGE TO PREVENT MARKET DISRUPTION. INSURANCE REGULATORS WILL WORK CLOSELY WITH THE SECRETARY TO IDENTIFY ANY PROBLEMS AND WAYS TO ADDRESS THOSE PROBLEMS. THIS IS ONLY ONE OF MANY IMPLEMENTATION TASKS THE STATES, FEDERAL AGENCIES AND THE NAIC MUST COMPLETE IN THE COMING YEARS AND WE ARE ENCOURAGED BY THE SPIRIT OF COOPERATION THAT HAS BEEN CREATED THROUGH THE MEDICAL LOSS RATIO DEVELOPMENT PROCESS AND WE ARE HOPEFUL THAT THIS COLLABORATION WILL BE ABLE TO BE CONTINUED. THAT THE POINT, I WOULD LIKE TO TURN THE MICROPHONE OVER TO TIM YOST WHO IS ONE OF OUR CONSUMER REPRESENTATIVES AND WHO HAS BEEN VERY INVOLVED AND ENGAGED IN THE DISCUSSIONS AND HELPED INFORM THE PROCESS AS WE MOVE FORWARD. THANK YOU, COMMISSIONER KLINE, MADAM SECRETARY, DIRECTOR AND FELLOW HEALTH INSURANCE CONSUMERS.
IT IS A GREAT HONOR TO BE PRESENT FOR THE RELEASE OF THIS IMPORTANT TOOL IMPLEMENTING THE MEDICAL LOSS RATIO PROVISIONS OF THE AFFORDABLE CARE ACT. AMERICANS AND THEIR EMPLOYERS PURCHASE HEALTH INSURANCE TO COVER THE COST OF THEIR HEALTH CARE. FEW AMERICANS UNDERSTAND HOW MUCH MONEY THAT THEY PAY FOR HEALTH INSURANCE, IN FACT ENDS UP PAYING FOR HEALTH INSURANCE BUREAUCRACY RATHER THAN HEALTH CARE. ON AVERAGE, 12% OF PREMIUMS ARE ON PHARMACEUTICALS, 31% FOR PHYSICIAN SERVICES, YET INSURERS COVERING 20% OF AMERICANS SPEND MORE THAN 30% OF THEIR PREMIUMS ON ADMINISTRATIVE COSTS. THIS RULE IMPLEMENTING SECTION 2718 OF THE PUBLIC HEALTH SERVICE ACT RECTIFY THAT IS SITUATION.
THIS RULE WILL DRIVE INSURANCE TO BECOME MORE EFFICIENT AND ALSO INCENTIVIZE THEM TO NOT RAISE THEIR PREMIUMS MORE THAN NECESSARY TO ACTUALLY COVER HEALTH CARE COSTS AND THE COSTS OF HEALTH CARE QUALITY IMPROVEMENT. IF AN INSURER RAISES PREMIUMS 20% AS SOME ARE DOING, BUT HEALTH CARE COSTS ONLY GO UP 5%, CONSUMERS WILL GET A REBATE AT THE END OF THE YEAR. AS HAS BEEN AND WILL BE NOTED BY OTHERS, THIS RULE IS DRAFTED BY THROUGH AN OPEN TRANSPARENT NON-POLITICAL PROCESS BY THE NATION'S REAL EXPERTS, INSURANCE LAW AND POLICY. IT'S INSURANCE COMMISSIONERS. THROUGH MORE THAN THE FIVE MONTHS OF HEARINGS THAT THE NAIC HELD ON THIS LAW, EVERY PERSPECTIVE WAS EXPRESSED AND HEARD.
CREDIT MUST BE GIVEN IN PARTICULAR TO NEW RELEASE OF NEW YORK AND STEVE AUSTIN OF ALABAMA AND THEIR HARDWORKING SUBGROUPS THAT DEDICATED 5 MONTHS OF THEIR LIVES TO THIS PROCESS. THE CAREFULLY CONSIDERED RULE YOU RECEIVE TODAY IS THE RESULT OF THAT PROCESS. THE CONTENTS OF THE MLR RULE HAVE BEEN WIDELY MISREPRESENTED AND MISUNDERSTOOD. I HAVE NOT YET HAD AN OPPORTUNITY TO READ THE 300 PAGES OF THE RULE. I'M EAGERLY LOOKING FORWARD TO IT. BUT I AM FAMILIAR WITH THE NAIC RULE ON WHICH IT IS BASED. I'VE READ A NUMBER OF STATEMENTS ABOUT THAT RULE THAT ARE SIMPLY NOT TRUE. ONE CLAIM IS THAT THE RULE WILL DISCOURAGE EFFORTS TO DETECT FRAUD. THE RULE IN FACT ALLOWS INSURE TOWERS OFFSET FUNDS THAT THEY SPEND ON FRAUD RECOVERY AGAINST MONEY RECOVERED.
IF FRAUD EFFORTS ARE IN FACT SUCCESSFUL IN IDENTIFYING FRAUD AND RECOVERY MONEY, THE INSURERS WILL GET CREDIT FOR IT. ANOTHER CLAIM IS THAT THE RULE WILL DISCOURAGE QUALITY IMPROVEMENT. IN FACT, THE RULE GIVES INSURERS FULL CREDIT FOR MONEY THAT THEY SPEND TO IMPROVE PATIENT OUTCOMES, TO PREVENT REHOSPITALIZATIONS, TO ENCOURAGE WELLNESS AND PREVENTION AND PREVENT PATIENT ERRORS AND PROTECT PATIENT SAFETY AND ON QUALITY-RELATED IT EFFORTS. ANOTHER CLAIM IS THAT THIS IS A 1-SIZE-FITS-ALL IN FLEXIBLE PROGRAM THAT DOESN'T TAKE INTO ACCOUNT THE DIVERSE CIRCUMSTANCES OF THE DIFFERENT INSURANCE MARKETS. THE NAIC RULE AND COMMISSIONER KLINE ALREADY ELUDED TO THIS, DOES PROVIDE FOR APPROPRIATE TREATMENT FOR DIFFERENT, SMALLER AND NEWER PLANS.
IN PARTICULAR, FOR SMALL INSURERS, INSURERS WITH FEWER THAN 1,000 COVERED LIVES WILL NOT BE SECRETARY TO THE REBATE PROVISIONS IN THE FIRST YEAR. NEW AND RAPIDLY GROWING PLANS WILL GET SPECIAL TREATMENT THROUGH MULTI-OPTION EMPLOYER PLANS. UNDER THE HHS RULE, MANY PLANS WILL ALSO GET SPECIAL CONSIDERATION AT LEAST FOR THE FIRST YEAR. MOST IMPORTANTLY, AND THIS IS WHAT COMMISSIONER KLINE ELUDED TO, HHS HAS THE AUTHORITY UNDER THE STATUTE TO ADJUST THE MEDICAL LOSS RATIO ON A STATE BY STATE BASIS BETWEEN NOW AND 2014 FOR STATES WHERE IMMEDIATE IMPLEMENTATION OF THE FULL MLR TARGET MIGHT BE STABILIZED THE INDIVIDUAL MARKETS. HHS IS SO FAR IN IMPLEMENTING IN ALL THE PROVISIONS OF THE AFFORDABLE CARE ACT, IN A PRACTICAL AND FLEXIBLE WAY. AND I EXPECT THAT IT WILL CONTINUE TO DO SO.
THIS IS A REASONABLE AND PRACTICAL RULE. IN THE THIRD-QUARTER OF 2010, SIX OF THE LARGEST INSURERS IN THIS COUNTRY MADE COMPEND PROFITS OF $3.4 BILLION. 22% MORE THAN THEY MADE IN THE THIRD-QUARTER OF LAST YEAR. FIVE OF THE SIX REPORTED LOWER MEDICAL LOSS RATIO THIS IS YEAR THAN LAST AND TWO DECREASED THEIR MEDICAL LOSS RATIOS BY MORE THAN 5 PERCENTAGE POINTS. INSURERS CAN ACHIEVE THE TARGETS ESTABLISHED BY THIS LAW. MANNER HEALTH INSURANCE CONSUMERS CANNOT AFFORD FOR THEM NOT TO DO SO. THANK YOU. HELLO, EVERYONE. I'M LYNN QUINCY FROM THE NONPROFIT PUBLISHER OF CONSUMER REPORTS MAGAZINE. IT'S A PLEASURE TO BE HERE. WHILE IT MAY NOT BE A CONSUMER-FRIENDLY TERM, THE MEDICAL LOSS RATIO REGULATIONS RELEASED TODAY ARE VERY GOOD FOR CONSUMERS. THESE REGULATIONS WILL HELP CONSUMERS GET BETTER VALUE FOR THEIR PREMIUM DOLLARS BEGINNING IN 2011. ALL HEALTH PLANS ARE REQUIRED TO SPEND A SET PERCENTAGE OF THEIR PREMIUM REVENUES ON MEDICAL CLAIMS QUALITY IMPROVEMENT EXPENSES. WHAT THE RULE SEEKS TO DO, AS YOU HEARD, IS TO KEEP A LID ON THE NON-MEDICAL EXPENSES TYPICALLY INCLUDED IN THE INSURANCE PREMIUMS WE PAY.
THINGS LIKE EXECUTIVE SALARIES, PROFITS, LOBBYING, ADVERTISING, MARKETING, AGENT COMMISSIONS, OVERHEAD AND MEDICAL UNDERWRITING. SHOULD A HEALTH PLAN SPEND TOO MUCH ON THESE ITEMS RELATIVE TO SPENDING ON MEDICAL CARE, THE PLAN HAS TO REIMBURSE CUSTOMERS BY PAYING THEM REBATES. BASED ON WHAT WAS ELUDED TO, BESIDES INTERESTING FILINGS FROM PRIOR YEARS, MANY HEALTH INSURERS WILL HAVE NO TROUBLE COMPLYING WITH THESE NEW STANDARDS. HOWEVER, THE NEW STANDARDS WILL PROVIDE A STRONG INCENTIVE FOR INSURERS WITH EXCESSIVE SPENDING ON ADMINISTRATIVE EXPENSES OR FROST REIGN THOSE IN. CONSUMERS WILL ALSO BENEFIT FROM GREATER TRANSPARENCY IN THESE PREMIUM CALCULATIONS.
THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS HAS ALSO APPROVED A NEW FORM GOVERNING HOW INSURERS REPORT SPENDING, SOMETHING CALLED THE MLR BLANK. IT USES CATEGORIES NECESSARY TO CALCULATE MEDICAL LOSS RATIOS AND THESE REPORTS HAVE TO BE MADE PUBLIC BY HHS ON ITS WEBSITE. SO IN THE FUTURE, IT WON'T TAKE A CONGRESSIONAL INVESTIGATION TO SEE HOW YOUR PREMIUM DOLLARS ARE BEING SPENT ON MEDICAL CARE. YOU HEARD OTHERS MENTION IT TODAY BUT I ALSO WANT TO NOTE THE LAUDIBLE PROFITS USED TO DEVELOP THESE RULES. FOR ANYBODY WHO IS UNFAMILIAR WITH HAVING NAIC WORKS, THIS ORGANIZATION USES AN OPEN AND PUBLIC PROCESS THAT WITH SIGNIFICANCE TO COMMENT BY CONSUMER GROUPS AND INSURERS.
THE FINAL RECOMMENDATIONS REFLECT MONTHS OF CONFERENCE CALLS, REVISIONS AND TESTIMONY BY EXPERTS. THESE LIVELY DISCUSSIONS INCLUDED DEBATES SUCH AS WHETHER OR NOT THE ADMINISTRATIVE COSTS FOR DENYING MEDICAL CARE CALLED LOSS JUDGMENT EXPENSES, SHOULD BE CONSIDERED PART OF CLINICAL CARE. AND I'M HAPPY TO REPORT THAT THE CONSUMERS WON THAT ONE. THIS PROCESS GENERATED THE REGULATIONS THAT RECOGNIZED AND BALANCED THE CLAIMS OF THE VARIOUS STEAK HOLDERS AND WE APPLAUD EVERYONE WHO PARTICIPATED IN THAT PROCESS. IN CONCLUSION, THE GOAL OF THE MLR REQUIREMENT IS NOT TO GENERATE REBATES BUT TO DRIVE INSURERS TO SPEND LOSS MONEY ON BUREAUCRACY AND MORE ON HEALTH CARE AND CONSUMERS BENEFIT WHEN THEIR INSURANCE CHOICES INCLUDE MORE EFFICIENTLY RUN INSURERS. THANK YOU. AGAIN, I WANT TO THANK OUR PARTICIPANTS AND I CAN TAKE A COUPLE OF QUESTIONS FROM PRESS FOLKS AND THEN I'M GOING TO TURN OVER THE ADDITIONAL QUESTIONS TO OUR ILLUSTRIOUS PANEL. YES, GO AHEAD. JANET ADAMS FROM THE WALL STREET JOURNAL. I HAVE TWO QUESTIONS ABOUT THE MLR REQUIREMENT AS IT PERTAINS TO MANY MED PLANS. IN WHAT WAY WILL THE MLR BE ADJUSTED FOR THE MINI-MED PLANS AND MY SECOND QUESTION IS, DO YOU HAVE ANY INDICATION THAT EMPLOYERS WILL HAVE TO DROP THESE PARTICULAR MINI-MED PLANS AS A RESULT OF NOT BEING ABLE TO MEET THE MLR?
WELL, AS YOU KNOW, THE MINI-MEDS HAVE DIFFERENT KIND OF FORMULA AND THE DECISION OF HHS IN COMPLIANCE WITH THE RULES OF THE SUGGESTED BY THE NAIC THAT WE WILL COLLECT DATA FOR THE FIRST YEAR ON MINI-MED PLANS, AND THEN MAKE A DETERMINATION ABOUT THE APPLICABILITY OF THE MLR ACROSS-THE-BOARD. THERE ISN'T A LOT OF DATA ON THIS MARKETPLACE. WE KNOW THAT ALSO MINI-MEDS VARY DRAMATICALLY IN TERMS OF QUALITY AND CONTENT. SOME OFFER A PRETTY GOOD VALUE, SOME, THE PREMIUMS ARE ALMOST AS EXTENSIVE AS THE DOLLARS PAID OUT. SO WE ANTICIPATE BASICALLY A YEAR OF DATA COLLECTION AND LOOKING TO JAY SO HE CAN CORRECT ME IF MY TECHNICAL ANSWER IS WRONG AND THEN, APPLYING A STANDARD PROCESS TO THE MINI-MEDS ALONG WITH SOME SUBSTANTIAL CONSUMER NOTICES ALONG THE WAY SO THEY UNDERSTAND WHAT THEY ARE NOT GETTING AT THIS POINT IS A FULLY COMPREHENSIVE INSURANCE PLAN. I'D JUST LIKE TO ADD ONE OR TWO THINGS TO THAT. NO ONE IS GOING TO LOSE THEIR COVERAGE. EVEN THOUGH THIS COVERAGE IS NOT THE BEST COVERAGE IN SOME CASES, NO ONE WILL LOSE EVEN THAT COVERAGE.
BECAUSE CARRIERS DON'T REPORT THE DATA SEPARATE. THEY TRADITIONALLY ARE REQUIRING THAT DATA TO BE REPORTED EARLY AND BESIDES THAT DATA, WE WILL DAUGHTER-IN-LAW WHAT HAPPENS AFTER THIS NEXT YEAR. BUT FOR THE FIRST YEAR, THERE IS A DIFFERENT METHODOLOGY APPLIED THAT WILL ALLOW MINI-MED CARRIERS, EVEN THOUGH SOME DON'T PROVIDE THE MOST COMPREHENSIVE COVERAGE, TO CONTINUE TO PROVIDE THAT COVERAGE. SARAH WITH DNA. CAN YOU ADDRESS WHAT WILL HAPPEN TO THE HIGH DEDUCTIBLE INSURANCE PLANS? I UNDERSTAND THAT MOST OF THEM WON'T BE ABLE TO MEET THE MEDICAL RATIO. THE ONES THAT COMES WITH HEALTH SAVINGS ACCOUNTS FOR EXAMPLE? CAN YOU ADDRESS THAT SPECIFICALLY? BECAUSE I'M -- THERE IS A SET OF CREDIBILITY ADJUSTMENTS IN THE REG CARRIERS GET ADJUSTMENTS, THAT IS THEY GET A BUMP UP IN THEIR MEDICAL LOSS RATIO BASED BOTH ON THE NUMBER OF POLICY HOLDERS THEY INSURE IN THE STATE AND ON THE LEVEL OF THE DEDUCTIBLE.
AND CARRIERS WITH A HIGHER DEDUCTIBLE, AND THIS IS ALL WORKED OUT BY A FIRM THAT JUSTIFIES IT, CARRIES A HIGHER DEDUCTIBLE GET A CREDIBILITY JUDGMENT BASED ON THE DEDUCTIBLE. SO THE MLR APPLIES BUT THE STATUTE ALLOWS US TO HAVE DIFFERENT METHODOLOGIES FOR DIFFERENT PLANS, SMALLER PLANS, NEWER PLANS, DIFFERENT TYPES OF PLANS. AND THAT'S WHAT THIS REG DOES. AND THIS IS IN KEEPING WITH THE STUD THEY JAY REFERS TO THAT WAS DONE BY THE NAIC AS PART OF THEIR PROCESS AND INFORMED THEIR RECOMMENDATION TO US WHICH INDEED WE ACCEPTED AND REASONABLE VARIATIONS. SO PLANS UNDER 75,000 HAVE A CREDIBILITY ADJUSTMENT THUNDER MARKETPLACE. BRAND NEW PLANS, THEY DON'T HAVE THE DATA TO MEET IT. PLANS WITH HIGHER DEDUCTIBLES AND UNDER 1,000 LIVES, THIS STATUTORY REQUIREMENT DOESN'T APPLY AT ALL.
SO WE ARE TRYING TO AGAIN, IN LINE WITH THE DATA THAT THE NAIC PUT TOGETHER, LOOK AT NOT -- THIS IS A BALANCE BETWEEN CONSUMER PROTECTION ON ONE HAND, GETTING CONSUMERS BETTER VALUE, BETTER TRANSPARENCY, KNOWING THAT THE VAST MAJORITY OF THEIR DOLLARS WILL PAY FOR MEDICAL CLAIMS AND QUALITY AND TRYING TO MINIMIZE MARKET DISRUPTION BETWEEN NOW AND 2014 WHEN THERE WILL BE A NEW MARKET STRUCTURE W THAT I'M GOING TO HAVE TO DEPART. BUT STEVE AND OTHER RECOVERING COMMISSIONERS WILL JOIN THE PANEL AND THE PANEL WILL BE GLAD TO CONTINUE TO ANSWER YOUR QUESTIONS. FIRST OF ALL, LET ME JUST QUIBBLE WITH ONE THING. THEY ARE NOT WAIVERS. THE STATES ARE ALLOWED TO SEEK AN ADJUSTMENT FROM THE STANDARD.
THE STATE'S DOWNWARD ADJUSTMENT. IF THE STATES WANT AN UPWARD ADJUSTMENT THEY ARE ALSO ALLOWED TO DO THAT. THE STATUTE MAKES THAT VERY CLEAR. FOUR STATES HAVE THE WRITTEN LETTERS SO FAR AND I ANTICIPATE THERE WILL BE SOME MORE. DON'T KNOW HOW MANY. [OFF MIC] SIR? -- FOUR STATES THAT ALREADY REQUESTED -- THE REG SETS OUT A PROCESS WHERE THERE ARE VARIOUS STANDARDS, VARIOUS FACTORS TO CONSIDER AND WE WILL CONSIDER THOSE FACTORS IN DETERMINING WHETHER TO GRANT ANY ADJUSTMENTS TO ANY STATE THAT SEEKS ONE. HI, ARE YOU CONCERNED ABOUT REPUBLICANS ATTACKING THE INDIVIDUAL MANDATES TRYING TO REPEAL IT AND ATTACK IT IN THE COURT? MY ANSWER TO THAT IS, WE ARE JUST TRYING TO IMPLEMENT THIS REG. HEALTH REFORM WEEK. TO FOLLOW-UP A PREVIOUS QUESTION ABOUT THE STATES WHO ASKED FOR A WAIVER AUTHORITY, YOU MENTIONED TWO STATES -- WE KNOW MAINE AND IOWA.
WHO ARE THE OTHER TWO AND WHAT WOULD BE YOUR TIMETABLE FOR MAKING DECISIONS ON THOSE AND WHAT WILL YOU CONSIDER EVIDENCE OF MARKET DISRUPTION SUFFICIENT TO QUALIFY FOR GRANTING A WAIVER? THE STATUTE SETS ALL THAT OUT. THE STANDARDS ARE NOT MARKET DISRUPTION. IT'S MARKET DESTABILIZATION. THE OTHER TWO STATES ARE SOUTH CAROLINA AND GEORGIA. AND WE WANT TO MAKE THESE DECISIONS AS QUICKLY AS POSSIBLE. I BELIEVE THE REG SAYS 30 DAYS AND I THINK THERE IS AN EXTENSION OF ANOTHER 30 DAYS. BUT WE WANT TO MAKE THESE DECISIONS AS EXPEDITIOUSLY AS POSSIBLE BOTH IF THE BENEFIT OF POLICY HOLDERS AND THE BENEFIT OF THE CARRIERS. CAN I SEE IF I UNDERSTAND THE NUMBERS -- IT SAYS UP TO 9 MILLION AMERICANS COULD BE ELIGIBLE FOR REBATES AND IT LOOKS LIKE 45 PURPOSE OF CONSUMERS BUYING INDIVIDUAL COVERAGE DON'T MEET THE STANDARD TODAY. THAT SUGGESTS ABOUT 45% OF THE PEOPLE IN THE INDIVIDUAL MARKETS ABOUT 17 MILLION PEOPLE, THAT SEEMS TO BE WHAT THE -- IS THAT RIGHT? I'M SORRY, I COULDN'T -- COULD YOU SPEAK CLOSER TO THE MIC? I DIDN'T GET ALL THAT? THE NEWS WEEK SUGGESTS THAT -- AM I READING NEWS WEEK RIGHT? 45% OF THE PEOPLE IN THE INDIVIDUAL MARKET ARE IN PLANS THAT DO NOT NOW MEET THE STANDARD.
AND THE INDIVIDUAL MARKET IS ABOUT 17 MILLION PEOPLE. SO THAT'S ABOUT 9 MILLION PEOPLE. IS THAT RIGHT? THE 9 MILLION IS NOT JUST THE INDIVIDUAL MARKET BUT ALL OF THE MARKETS COMBINED. SO IT'S AN ESTIMATE FOR THE INDIVIDUAL SMALL GROUP AND LARGE GROUP BASED ON THE IMPACT ANALYSIS THAT IS IN THE REGULATION. [OFF MIC] THAT IS WHAT WE BELIEVE. THAT IS AN ESTIMATE BAITS ON PERFORMANCE FROM PRIOR YEARS -- BAITS ON PERFORMANCE FROM PRIOR YEARS AND TRYING THE METHODOLOGY FROM WHAT WE KNOW. I WANTED TO ASK OR FOLLOW-UP A LITTLE BIT MORE ON THE UNIVERSAL MANDATE QUESTIONS. JUST LOOKING, AND IF ANYONE ON THE PANEL CAN COMMENT -- JUST LOOKING AT OVERALL THE INSURANCE INDUSTRY'S IMPACT ON, IF THERE ARE PIECE MEAL REPEALS, THAT HAPPEN DOWN THE ROAD, WHAT IS THAT GOING TO MEAN AND INCLUDING THE MLR? I'D LIKE TO FOLLOW-UP ON MY ANSWER, WHICH IS THAT WE HERE ARE WORKING ON THE MLR REG IMPLEMENTATION. ANYTHING AS FAR AS HOW THE OVERALL BILLS WILL IMPACT INSURANCE? NO.
WE ARE FOCUSED ON THIS REG. NATIONAL JOURNAL. CAN YOU TALK ABOUT WHY YOU FOLLOW THE NAIC RECOMMENDATIONS ON TAXES, WHICH CONGRESSIONAL DEMOCRATS -- [INAUDIBLE] THE STATUTE IS VERY CLEAR THAT THE NAIC DOES A REPORT ON METHODOLOGIES AND DEFINITIONS AND THAT IS SUBJECT TO THE CERTIFICATION OF THE SECRETARY. AND THE SECRETARY DID CERTIFY AND WAS HAPPY TO CERTIFY THE RECOMMENDATIONS OF THE NAIC AND SHE MENTIONED, SHE IS A FORMER INSURANCE COMMISSIONER, I AM, STEVE LARSEN IS. WE HAVE GREAT RESPECT FOR THE WORK OF THE NAIC AND THEIR EXPERTISE AND WE BELIEVE THEIR RECOMMENDATIONS ARE REASONABLE AND THEREFORE WE CERTIFY THEM. WILL IT BE NATIONWIDE FOR THE INSURERS AND ANOTHER QUESTION WAS, WILL THE REBATES GO TO CONSUMERS OR HOW WILL THAT HAPPEN?
LET ME JUST SAY A FEW WORDS AND THEN I'LL TURN IT TO STEVE. INSURANCE REGULATIONS HAVE TRADITIONALLY BEEN ON A STATE BY STATE BASIS AND THE STATUTE CONTEMPLATES THE CONTINUATION OF THAT STATE REGULATION AND SO IN GENERAL, YES, THE MEDICAL LOSS RATIO IS CALCULATED ON A STATE BY STATE BASIS. STEVEN, CAN YOU ELABORATE ON THAT A LITTLE BIT AND THE ALSO ON THE REBATE METHODOLOGY. I THINK THAT COVERS IT ON THE STATE BY STATE BASIS. THERE ARE SOME RULES IN THE REGS FOR MULTISTATE ISSUERS WHO COVER MULTISTATE EMPLOYERS FOR THAT EXPERIENCE TO BE REPORTED IN A SINGLE ISSUER. AND AGAIN, IN ACCORDANCE WITH WHAT THE NAIC RECOMMENDED.
AND ON THE ISSUE OF REBATES, CERTAINLY THE INDIVIDUAL COVERAGE, THE REBATE GOES BACK TO THE INDIVIDUAL. IF YOU HAVE EMPLOYER-BASED COVERAGE, WE -- I GUESS THE REG SETS UP A SYSTEM WHERE THE REBATE GOES BACK TO THE EMPLOYER AND IN SOME CASES OF COURSE EMPLOYEES CONTRIBUTE TO THEIR COVERAGE IN THE FORM OF PREMIUMS SHOULD GET THE BENEFIT OF ANY REBATES TO THE EXTENT THEY CONTRIBUTED AND SO, THEY WOULD SHARE IN THOSE REBATES AS WELL. JAY FROM CONGRESSIONAL QUARTERLY. IS THERE ANYTHING SET IN THE REGULATION ABOUT INSURANCE AGENTS AND BROKERS ABOUT KEEPING THEIR ROLE IN THE PROCESS? SURE. IN DETERMINING THE EXTENT WHETHER TO GRANT AN ADJUSTMENT TO A MEDICAL LOSS RATIO IN A STATE, ONE OF THE FACTORS WHICH THE NAIC RECOMMENDED WE CONSIDER IS THE EFFECT IT WOULD HAVE ON CONSUMER ACCESS TO AGENTS AND BROKERS AND THAT IS THAT THE STANDARD WHICH WE ADOPTED IN REG. I'M FROM THE WASHINGTON POST. IN DEFINING WHO IS ELIGIBLE FOR JUDGMENTS, STATES ASKED FOR THEM AND WHAT WAS THE RATIONAL BEHIND ALLOWING ONLY THE INDIVIDUAL MARKET AND NOT IN THE SMALL GROUP MARKET GIVEN THE TWO PART SEGMENTS ARE COMBINED FOR THE PURPOSES OF THE 80%?
OTHER PARTS OF THE REG AND THE LAW DEFINED AS DIFFERENTLY THAN THE LARGE GROUP OF THE MARKET? OUR RATIONAL WAS THAT THE STATUTE GIVES THE SECRETARY THE AUTHORITY TO MAKE SUCH AN ADJUSTMENT IN THE INDIVIDUAL MARKET BUT NOT IN THE SMALL GROUP MARKET. TIME FOR TWO MORE QUESTIONS. THEY SAID THERE SHOULD BE SOME KIND OF MEASURE IN PLACE TO MAKE SURE THE QUALITY IMPROVEMENT MEASURES WERE IMPROVING QUALITY. ANY CONSIDERATION WHAT YOU MAY DO THERE? DO YOU WANT TO TAKE THAT? WELL, I THINK THERE WERE A NUMBER OF FACTORS THAT THE NAIC LAID OUT IN TERMS OF WHAT COULD QUALIFY AS A QUALITY IMPROVING ACTIVITY. THEY HAVE TO BE REASONABLY CAPABLE OF MEASUREMENT AND ANOTHER COUPLE OF OTHER ONES LAID OUT.
AS THE DATA GET FILED, I THINK CERTAINLY THE STATES AND HHS WILL WORK TOGETHER TO MAKE SURE THAT THOSE CRITERIA FOR EFFECTIVENESS ARE BEING MET. ANYMORE QUESTIONS? YES, SIR? CHRIS FROM HEALTH AFFAIRS. JOE TALKED ABOUT THE FACT THAT INSURERS CAN OFFSET ANTIFRAUD EXPENDITURES AGAINST MONEY THAT IS RECOVERED. THAT SEEMS A RELATIVELY EASY CALCULATION WHEN YOU TALK ABOUT MONEY THAT IS FRAUDULENTLY PAID OUT AND RECOVERED AFTER THE FACT. HOW DO YOU MAKE THAT CALCULATION FOR ANTIFRAUD EXPENDITURES, DATA SYSTEMS, THAT ARE DONE BEFORE THE FACT TO PREVENT THE FRAUD FROM OCCURRING AT ALL?
HOW DO YOU DECIDE HOW MUCH FRAUD WAS PREVENTED IN TERMS OF CALCULATING THAT OFFSET? DO ONE OF YOU WANT TO RESPOND TO THAT? [OFF MIC] I HAVE NOT RED THE RULE SO I DON'T KNOW HOW THAT IS DONE BUT I THINK INSURERS WILL REPORT THEIR FRAUD DETECTION AND RECOVERY EXPENSES AND THEN COMPARED TO THE RECOVERIES THEY MAKE. THE IDEA THERE WAS THAT IF YOU RECOVER FRAUD FUNDS THAT WERE FRAUD LEAN EXPENDED THAT REDUCES THE LEVEL OF YOUR CLAIMS AND THEY DIDN'T WANT TO PENALIZE INSURERS FOR THAT SO ADD THAT MONEY BACK ON TO YOUR INCURRED CLAIMS. IF THERE ARE NO OTHER QUESTIONS, THANK YOU VERY MUCH FOR COMING.
NOTE: The transcript for this program may have been compiled from uncorrected Closed Captioning.