NAIC Approves MLR Recommendations
October 22, 2010
On October 21, 2010, the National Association of Insurance Commissioners (NAIC) approved rules dictating how insurers must calculate their Medical Loss Ratio (MLR). Under the Patient Protection and Affordable Care Act, beginning in 2011, insurers and HMOs must annually calculate their MLR and provide rebates to policyholders if their MLR (percent of premium revenue spent on claims/medical care) is less than 85 percent for large groups and 80 percent for small groups or individuals.
The NAIC vote took place in Orlando, Fla., after months of evaluation with input from consumer and insurance industry representatives, and other key stakeholders. A number of proposed amendments were considered by the NAIC. Results are as follows:
- Proposed Amendment: Remove sales agent commissions from MLR calculation.
- Result: The NAIC recommended a subcommittee of the NAIC's Executive Committee to work with Health and Human Services (HHS) to determine the most appropriate manner to accommodate agent commissions in the MLR calculation.
- Proposed Amendment: Allow insurers to calculate their MLR on a national basis for the large group market (aggregation) instead of state-by-state.
- Result: The aggregation amendment was withdrawn.
- Note: Cigna has gone on record in favor of calculating the MLR on a national basis aggregated across all states for the large group market with a state-by-state approach for the small group and individual markets. We will continue to advocate for this change on behalf of our constituents to preserve consumer choice and market competition.
- Proposed Amendment: Move the credibility adjustment from the 50th percentile to the 80th percentile. Credibility adjustments are designed to mitigate statistical variation disaggregation of risk pools into smaller cells that would trigger a payment of rebates from random variation.
- Result: This proposed amendment failed with a 34-19 vote, with one abstention. Cigna supports a confidence interval more consistent with the recommendation from the American Academy of Actuaries (80th - 90th percentile).
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