Mini-Med Plans Might Survive Healthcare Reform Regulations, Unfortunately
It looks as though the mini-med insurance plans favored by McDonald's and other big companies with low-wage workers might survive the first round of healthcare reform, after all. The Obama Administration is giving strong signals that it will provide waivers to these plans from soon-to-be-issued regulations governing the minimum percentages of premiums that insurers must spend on patient care under the Affordable Care Act.
Last Thursday, the National Association of Insurance Commissioners (NAIC) approved a set of recommendations to the Department of Health and Human Services (HHS) about how to implement these regulations. As expected, the NAIC took a fairly strict line on what kinds of expenses insurance companies can include under the heading of "patient care" in calculating the ratio between premiums and medical costs. This is known in the industry as the "medical loss ratio," or MLR.
The MLR has always been important to insurers as a measure of how well they're doing in holding down medical costs. They're important to investors, too, because a lower MLR usually predicts a higher profit margin in the next quarter or year. Under the healthcare reform law, however, the MLR must be at least 80 percent for individual and small business plans, and 85 percent for plans sold to large companies.
McDonald's complained to HHS that if this rule were applied to the low-cost, low-benefit policies -- known as "mini-med plans" -- that it offers its workers, the company's insurance carrier would drop the plans. The same is true for other big restaurant and retail firms that employ a lot of low-paid workers. Because of the high turnover rate of these employees and the low amount of their average claims, mini-med plans tend to have fairly high administrative costs, which would make it difficult for them to meet the 85 percent MLR required by the law.
In an effort to keep these plans afloat, the government granted waivers to about 30 companies that have mini-med plans, including McDonald's, so that they don't have to provide the legally required minimum coverage of $750,000 in 2011. But whether they will also be exempt from the MLR mandate is still unclear.
The picture became a little clearer after the NAIC issued its guidance and HHS Secretary Kathleen Sebelius said she would soon put the MLR regulations into effect. Asked whether mini-med plans would be granted a dispensation, an HHS spokeswoman drew BNET's attention to a department press release. In part, the release stated:
We fully intend to exercise [the Secretary's] discretion under the new law to address the special circumstances of mini-med plans in the medical loss ratio calculations. According to the Affordable Care Act, medical loss ratio 'methodologies shall be designed to take into account the special circumstance of smaller plans, different types of plans, and newer plans.' We recognize that mini-med plans are often characterized by a relatively high expense structure relative to the lower premiums charged for these types of policies. We intend to address these and other special circumstances in forthcoming regulations.
The NAIC, meanwhile, answered another burning question by excluding insurance broker commissions from the expenses that can be included under patient care. This decision will put additional pressure on the insurance agents, whose incomes are already being squeezed. After the MLR rules become effective, insurance companies will probably try to recover some of their lost profits by taking a bigger bite out of those commissions.
Naturally, America's Health Insurance Plans (AHIP) assailed the NAIC recommendations, asserting that they would disrupt coverage and reduce competition in local insurance markets. But Sebelius said, "These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers."
Image supplied courtesy of Wikimedia Commons.
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