Let States Rule On Health Care Costs, Insurance Trades Say

NU Online News Service, Jan.8, 3:37 p.m. EST

WASHINGTON--Four insurance trade groups have drafted a letter urging lawmakers to give state regulators the job of setting rules governing health insurance administrative costs and sale of health policies through exchanges.

"As Congress begins the process of combining the House and Senate-passed comprehensive health reform bills into one piece of legislation, our members believe it important that the role of individual states be preserved and strengthened relative to health reform implementation," their letter said.

A draft of the letter was obtained yesterday by NU Online. It is expected to be sent to all members of Congress by Monday.

The letter is the work of officials of the Council of Insurance Agents and Brokers; the Independent Insurance Agents and Brokers of America; the National Association of Health Underwriters; and the National Association of Insurance and Financial Advisors.

Amongst other concerns, the letter noted a provision in the House bill making the Small Business Administration responsible for "a host of services" for small businesses related to health care.

The letter said the SBA "is already overworked, underfunded and struggling to fulfill key priorities in relation to its current duties and obligations."

Another issue called critical in the letter is a transition to the strong medical loss ratio (MLR) provisions contained in both the House and Senate versions of the legislation designed to reduce insurer spending on administrative costs.

Those provisions would require insurance companies to pay a fixed limited percentage of premium revenue against their total medical claims cost.

Insurance agents are concerned that rather than cutting costs the provision's primary effect will be to drastically reduce their commissions, especially on sale of health insurance to small groups and individuals, because they exceed current state-based MLRs, if any.

The House bill sets the MLR rate at at least 85 percent across markets (and gives the secretary of Health and Human Services authority to set them higher. The Senate-passed measure sets the MLR rates at a minimum of 85 percent for large group plans and 80 percent for individual and small group plans, the letter said.

The letter suggests that at least until the system is fully implemented in 2014 that states be allowed to lower the requirement to 75 percent, the rate used by many states, at least in the individual market, to allow an adequate transition period.

And that should happen only "if it is absolutely necessary to have a loss ratio requirement" in any final bill, the letter said.

That's because insurers will have all of the same expenses they have today, plus those associated with preparation for transition to the new systems outlined in the legislation, the letter explained.

The trade groups also said in the letter that states should have a role in defining and also in determining "if the MLR level is adversely impacting the functionality of each state's specific insurance markets."

Regarding exchanges, the letter said each state should have the ability to design and maintain its own exchange to accommodate the varying needs of its own population, as is allowed in the Senate-passed legislation, H.R. 3590.

"And in creating these state-based exchanges, it is crucial that Congress preserve state-based flexibility and utilize existing state-based regulatory authority through the nation's governors and insurance commissioners," the letter said.

"The federal regulatory functions of any exchanges should be focused on areas needed to facilitate the purchase of insurance by individuals and small employers," the letter added.

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