Call for MLR Regulation Gets Mixed Reaction

The Commonwealth Fund on Wednesday released a study on the federal medical-loss ratio rule, which concluded that regulation may need to be introduced to maximize the effect of the MLR.

“In future years, the MLR rule may need to be coupled with regulatory pressure in order for any further reductions in administrative costs to be reflected in reduced premium rates,” the study said.

That squares with the opinion from the state insurance commissioner, but the medical insurance industry does not agree.

“The goal of the medical loss ratio requirement is to make sure more of the money we pay in health insurance premiums goes to actual medical care, but it does not limit the price that health insurers and HMOs can charge and thus does not limit their profits or administrative costs,” Insurance Commissioner Dave Jones said.

Administrative costs have little to do with the rise in health care premium rates, said Nicole Evans, vice president for communications at the California Association of Health Plans.

“There is broad recognition that health care costs are rising at an unsustainable rate,” she said. “But the data are very clear that soaring medical costs, not health plans’ administrative costs, are driving health care cost growth.”

Evans said federal data shows that 96% of the increase in premiums over the past five years was due to the rise in spending on health care services, not a rise in administrative costs. “The MLR completely ignores the real driver of premium increases,” Evans said.

Jones feels the issue is pretty straightforward and backed by the Commonwealth study: The state needs enforcement power over rate hikes, he said.

“I have long pushed for the authority to reject excessive health insurance rate increases,” Jones said, “and this study provides further evidence of why this change in the law is long overdue in California.”

An attempt at rate regulation came before the Legislature in 2011. AB 52, proposed by Assembly member Richard Feuer (D-Los Angeles) would have given enforcement authority to the state to regulate health insurance rate increases, but failed to garner enough votes in the Legislature and was tabled. It potentially could be revived in the next session, which begins Jan. 7.

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