Defining Medical Expenses — An Early Skirmish over Insurance Reforms | Health Policy and Reform

John K. Iglehart

The Affordable Care Act (ACA) vests state insurance regulators with enormous power as they partner with the federal government to determine how the act is implemented. The stringency with which state and federal governments draw their implementation plans will largely determine the degree to which private insurers must transform their business models to operate successfully under reform. A major early test of state regulators’ ability to meet this challenge is under way, as the National Association of Insurance Commissioners (NAIC) develops recommendations for carriers in the large-group market regarding compliance with a new requirement that they spend 85% of the money they collect in premiums on medical care or refund money to policyholders; in the individual and small-group markets, the threshold for the proportion spent on care — called the medical loss ratio (MLR) — is 80%. The Department of Health and Human Services (DHHS) must certify the NAIC’s recommendations before they take effect next January. Although the establishment of a federally required minimum MLR has drawn less attention than other ACA provisions, a Wall Street analyst asserted recently that the defining of these ratios “will be one of the most important events [of] the year for managed care stocks.”¹
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