WASHINGTON — The Obama administration issued rules Monday defining a promise to consumers in the new federal health-care law that insurers will spend at least $4 out of $5 they collect in premiums on medical services and other efforts to improve patients’ health.
The rules say that, starting in January, insurers must reveal far more information than required in the past about how they allot their money. The rule is intended to curb the proportion of their income that insurers devote to administrative costs, their executives’ pay and profits.
The standards culminate months of heavy lobbying by the insurance industry, providers of health care and consumers over how stringent the government should be in defining which activities health plans may count as improving the quality of care.
In the end, the standards “guarantee that consumers get the most out of their premium dollars,” Health and Human Services Secretary Kathleen Sebelius said at a news conference to announce her agency’s decision. “While some level of administrative costs are certainly necessary, we believe they have gotten out of hand. That is going to change.”
The regulation is the kind of important fine print that will determine how the sprawling law enacted by Congress in March will play out in practice. Of the rules the administration has issued since the law was passed, Monday’s is likely to have the most far-reaching effect on the insurance industry and - according to federal estimates - nearly 75 million insured Americans who depend on it.
The decision also is a window onto the tug of war that is certain to persist in coming years as constituencies with competing stakes jockey over myriad federal and state decisions that translate the legislative language into reality.
The standards set forth by federal health officials adopt wholesale a set of recommendations given to the administration last month by the group that represents the nation’s state insurance regulators. The law assigned the National Association of Insurance Commission, which wanted a large say in the decision, the task of developing regulatory language, then submitting it to the Department of Health and Human Services to be “certified.”
Federal health officials could have departed from those recommendations but did not. They did, however, go beyond the association on several areas where the group did not give formal advice.
Among the most significant, the administration decided to let any state ask federal health officials for exemptions from the rules on behalf of health plans sold to individuals - a relatively small but expensive and shaky 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, Health and Human Services Department officials said, four states have requested such “adjustments,” as the exemptions are being called.
In addition, the rules say that two small parts of the insurance market, bare-bones coverage known as “minimed” policies and policies sold to Americans living abroad, will not have to meet the standards for at least a year. During that time, the Health and Human Services Department will collect more data on those two forms of insurance and decide whether to apply the same rules to them. The regulation represents the first time that the federal government has specified the proportion of insurance premiums that must be devoted to patients’ well-being. The figure, known as a “medical loss ratio,” must be at least 85 percent for coverage to large groups of employees - that is, most of the U.S. insurance market - and at least 80 percent for coverage sold to individuals and small groups, generally 50 people or fewer.
Some states already have rules regarding such ratios. With a few exceptions, those states tend to require lower percentages of money to be spent on patient care, and some state rules merely require that insurers report whatever their ratio is.
Starting in 2012, the government will require health plans to issue refunds to their customers if they spent too much money on the wrong things.
In broad strokes, the government’s decision represents a balancing act. The Obama administration, like the insurance commissioners, feared that if the rule was too stringent, health plans might drop out of the market. But too loose a rule, they believed, could undermine the law’s intent to compel insurers to devote more of their resources to benefiting patients, instead of their own bottom line.
Although the math - 80 percent or 85 percent - seems clear at first, many intricate questions hover beneath the surface. The most central: Exactly which activities carried out by health plans deserve to be defined as improving the quality of patients’ health?
The industry’s main trade group, America’s Health Insurance Plans, and individual insurers contended, for instance, that they should be permitted to count their efforts to curb billing fraud and abuse, commissions for insurance agents brokers and the start-up costs of switching to a required new coding system for medical billing. None will be allowed, the Healthand Human Services Department decided.
On the other hand, insurers succeeded in persuading the government to include other disputed activities, such as disease management initiatives and hotlines staffed by nurses to coach patients after they are discharged from a hospital.
Front Section, Pages 3 on 11/23/2010