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

WASHINGTON–Four insurance trade groups have drafted aletter urging lawmakers to give state regulators the job of settingrules governing health insurance administrative costs and sale ofhealth policies through exchanges.

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

A draft of the letter was obtained yesterday by NUOnline. It is expected to be sent to all members of Congressby Monday.

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

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

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

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

Those provisions would require insurance companies to pay afixed limited percentage of premium revenue against their totalmedical claims cost.

Insurance agents are concerned that rather than cutting coststhe provision's primary effect will be to drastically reduce theircommissions, especially on sale of health insurance to small groupsand individuals, because they exceed current state-based MLRs, ifany.

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

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

And that should happen only "if it is absolutely necessary tohave a loss ratio requirement" in any final bill, the lettersaid.

That's because insurers will have all of the same expenses theyhave today, plus those associated with preparation for transitionto the new systems outlined in the legislation, the letterexplained.

The trade groups also said in the letter that states should havea role in defining and also in determining "if the MLR level isadversely impacting the functionality of each state's specificinsurance markets."

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

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

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