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Maine seeks reform waiver on insurer spending rule

The state's insurance superintendent fears that the new regulations could leave the state's residents with few or no options for individual coverage.

By Emily Berry — Posted Aug. 2, 2010

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A year after Maine Insurance Superintendent Mila Kofman in 2009 tussled with Anthem Blue Cross and Blue Shield, pushing its premiums down to a break-even point, she has asked federal authorities not to force health plans in her state to comply with medical spending regulations set to begin in January 2011.

The Patient Protection and Affordable Care Act signed into law in March requires insurers to spend a certain portion of premiums on medical care rather than administration or profits -- a percentage known in the industry as medical-loss ratio. The new law sets an 80% minimum MLR for the individual and small group markets, and an 85% minimum in the large group market.

The minimum takes effect in January. Insurers that do not spend the minimum amount on care would be required to pay members rebates.

The law also lets states set higher minimum MLRs and allows the secretary of Health and Human Services to grant an exemption "if the secretary determines that the application of the 80% minimum standard may destabilize the individual market in that state."

Using that precise language in a July 1 letter to HHS Secretary Kathleen Sebelius, Kofman asked for a waiver for insurers operating in Maine that would allow health plans to continue under state rules, which set a minimum MLR at 65%.

"Absent a waiver, I believe that the federal MLR standard may disrupt our individual health insurance market," she wrote. "Loss of one of the two insurers would have a serious destabilizing effect in our individual market."

At this article's deadline, Sebelius' office had not responded to her letter.

Kofman was not available for comment by deadline. But she told Maine Public Radio that she was worried that, "as companies take a look at their financial bottom lines, if they can't meet the higher requirements, as a business decision, they may decide they no longer want to do business in a particular market."

Potential impact

HealthMarkets, parent company of MEGA Life and Health Insurance, in public filings suggested it may leave the state if the MLR minimum were pushed higher. A company statement said the health plan has an MLR of 67% in Maine and that spending 80% of premiums would make it impossible to pay insurance agents who "educate" the public about its products.

"Our company has been in contact with Superintendent Kofman, and we are appreciative of her request to HHS for a waiver of the federally mandated MLR," HealthMarkets said.

Kofman historically has been less lenient with insurers. In 2009, she rejected Anthem Blue Cross and Blue Shield of Maine's request to raise rates by an average of 18.1%, instead instructing the plan to set its premiums at what Anthem projected would allow it just to break even.

Anthem challenged that decision, but in an April ruling, a Maine Superior Court judge upheld Kofman's decision. Anthem has appealed the ruling and has asked for a rate increase averaging 23% for 2010.

Industry trade group America's Health Insurance Plans has been critical of the idea of a rigid MLR minimum. "There's a lot of evidence that depending on how the MLR definition is written, it could cause a significant amount of disruption for people," AHIP spokesman Robert Zirkelbach said.

How to calculate MLR remains an open question for federal regulators, who have turned to the National Assn. of Insurance Commissioners for recommendations.

Those recommendations were still pending in mid-July, but a draft awaiting approval from NAIC leadership included a recommendation for a ramp-up period for some insurers and enforcement leeway for state regulators who don't want to push noncompliant insurers out of their markets.

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