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AMA, state societies back plan limiting insurers' administrative spending

Insurance commissioners propose barring health plans from considering anti-fraud efforts, coding upgrades and some utilization review as medical expenditures.

By Chris Silva — Posted Aug. 30, 2010

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Physician and hospital organizations have expressed general support for a proposal from state insurance commissioners on what health insurers should be allowed to consider medical spending under new health system reform regulations.

Starting next year, insurers will be required to spend 80% of the premiums they collect for individual and small-group policies on patient care and quality improvement -- 85% of premiums for large-group policies. The latest draft proposal from the National Assn. of Insurance Commissioners gives an idea of how the federal government might classify particular types of spending when determining the medical-loss ratio, which is the portion of premium revenue spent on actual medical services compared with the portion that goes toward administrative costs, plan profits and other expenses.

On Aug. 17, the NAIC unanimously approved the forms that insurers will fill out to report their financial information to state regulators, who then will calculate the medical-loss ratios. If plans have not spent enough premium dollars on patient care, they will be required by the health reform law to provide rebates to subscribers.

By setting specific criteria for what can be considered quality improvement expenses, the NAIC effectively has proposed definitions for what constitutes a medical expense. It will issue the final report on these recommendations this fall. However, the Dept. of Health and Human Services still must give final approval to the criteria, meaning the rules could become more or less restrictive on insurers before they take effect in 2011.

The NAIC has given insurers some leeway in its proposal. Health plan activities that would count as quality improvement include comprehensive discharge planning, case management, care coordination, chronic disease management, and health information technology expenses related to preventing hospital readmissions and reducing medical errors. Insurers would be able to consider costs associated with certain public health education campaigns to be in the wellness and health promotion category, also a medical expense.

But health plans would not be able to consider fraud prevention and detection efforts when it calculates its medical expenses. Also excluded would be insurer costs associated with the implementation of the new International Classification of Diseases code sets, or ICD-10, the next generation of diagnostic codes that physicians and health plans will need to adopt.

In addition, the NAIC has proposed excluding the costs of concurrent and retrospective utilization review, which requires physicians or hospital staff to relay clinical information during or after the active management of patient conditions to insurers, who then determine if the administered care is covered. Prospective utilization review still would be considered a medical expense under the quality improvement heading.

Where to strike the balance

The NAIC framework largely was welcomed by organized medicine.

In an Aug. 13 letter to the NAIC, the American Medical Association commended the organization "for developing a proposal that limits quality improvement to those activities that promote measurable, direct patient benefit." The letter also was signed by most state medical societies, as well as the American Hospital Assn. and the Federation of American Hospitals.

The organizations in particular stated their support for the association's decision not to consider insurer expenses associated with anti-fraud and abuse efforts as medical spending. However, the groups asked that the same restriction be extended to all types of utilization review activity, whether it be conducted prospectively, concurrently or retrospectively.

"With that one change, we believe the proposal will reflect a reasonable compromise as to those activities which should be defined as quality improvement," the letter stated.

America's Health Insurance Plans, however, said the current proposal could erode improvements insurers have made in health care quality, endangering patient safety and access.

"The current proposal could have the unintended consequence of turning back the clock on efforts to improve patient safety, enhance the quality of care and fight fraud," said Karen Ignagni, AHIP's president and CEO. "Preserving patients' access to high-quality health care services is essential if the key goals of health care reform are to be achieved."

AHIP has asked the NAIC to reconsider its proposed exclusion of costs associated with fraud prevention, ICD-10 implementation, and concurrent and retrospective utilization review.

But other health consumer advocates have joined the AMA in applauding the NAIC's proposal.

"The top state insurance regulators from across the nation voted to put patient care above insurance company profits," said Ethan Rome, executive director of Health Care for America Now!, a grassroots coalition that supported the new health reform law. "This decision moves us closer to more affordable health care for families and businesses and will help ensure that the new health care law fulfills its promise."

Some lawmakers also voiced their support for the financial reporting guidelines.

"For too long, health insurance company CEOs have been pocketing astronomical salaries all the while denying care and coming up with foolish reasons to kick people off their insurance policies," Sen. Jay Rockefeller (D, W.Va.) said in an Aug. 16 statement. "If we want to change the culture of health insurance companies and how they treat individuals and families in need of health care, then we need to change the way they do business."

But not all state regulators are comfortable with the upcoming restrictions on health plans. Although Maine insurance commissioner Mila Kofman has been an advocate of the health reform law, she is opposed to the requirement that individual and small-group plans spend a minimum of 80% of premiums on care. She expressed such sentiments in a July 1 letter to HHS Secretary Kathleen Sebelius and requested a waiver of the requirement. Maine has had a minimum medical-loss ratio setting of 65% in the individual market since 1993.

"Absent a waiver, I believe that the federal [medical-loss ratio] standard may disrupt our individual health insurance market," Kofman said. "There are two insurers selling coverage. Loss of one of the two insurers would have a serious destabilizing effect in our individual market."

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ADDITIONAL INFORMATION

Insurer expense exclusions

The National Assn. of Insurance Commissioners has approved proposed medical-loss ratio guidelines that would limit what kind of spending insurers can consider as going toward patient care and quality improvement. If the federal government approves the recommendations, insurers will not be able to count spending as a quality improvement expense if it goes toward:

  • Retrospective and concurrent utilization review
  • Fraud prevention
  • Development or execution of provider contracts
  • Establishment or management of provider networks
  • Establishment or maintenance of claims adjudication systems
  • Provider credentialing
  • Marketing
  • Accreditation
  • Calculation or administration of individual enrollee or employee incentives

Source: The National Assn. of Insurance Commissioners' proposed form for insurers to report financial information to state regulators (link)

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