"If the insurer is unable to pay claims after the patient receives care, additional consumer protections are unhelpful," the NAIC states. "If improperly applied, the new MLR requirements could impair the ability of insurers to maintain sufficient capital and comply with risk-based capital requirements. While the regulations developed by the NAIC do address this concern, we must remain vigilant so that the final regulations do not hinder the ability of state insurance regulators to preserve financially stable markets."

Phase-in of MLR limits

The NAIC says state regulators plan to provide fact-based recommendations on the markets that would need to be allowed longer transitions or even exemptions from the 2011 MLR.

In January, the NAIC wrote to members of Congress, expressing concern that some insurers in the individual market would not be able to reach a loss ratio of 80 percent because "these companies have already entered into contracts with agents and brokers that obligate them to pay specified levels of commissions, and have expenses associated with underwriting and marketing that they will not be able to reduce until guaranteed issue requirements and health insurance exchanges are implemented."

MLR requirements will limit administrative expenses beginning next year, but health insurance exchanges, rating and market reforms, and other PPACA provisions that can help reduce administrative costs won't go into effect until 2014, the NAIC states.

Without a transitional period, some markets are likely to be "destabilized." Under health reform, Secretary Sebelius is given authority to adjust the MLR percentage if the 80 percent standard may destabilize the individual market in a particular state.

Whether a health insurance market will need more time to implement MLR standards will be left up to state regulators, the NAIC recommends, as they are most familiar with those local markets. Those regulators will have to base their decision on a few factors:

• The potential impact on insurer solvency;
• The potential loss of carriers marketing products in the state and the impact on consumers and competition in the marketplace;
• The ability of consumers to find easily affordable products in the state should their carrier leave the state market;
• The potential impact on benefits and cost-sharing of existing products;
• The potential impact on premiums paid by current policyholders; and
• The potential impact on consumer access to agents and brokers.

Should a state or insurance market recommend a transitional exemption, the NAIC says the regulator would also propose a solution to the factors on which the recommendation is based.

The role of insurance producers

As insurance markets evolve during the transition to state-run health exchanges, the NAIC asserts the role of agents and brokers will be especially important. The NAIC wants HHS to recognize this role and "accommodate producer compensation arrangements" in MLR regulation.

"Obviously, time is critical," the NAIC says in its letter. "Carriers need to know well before Jan. 1, 2011, what will be required of them so they can appropriately set rates, adjust business practices or reassess their position in various markets. The commissioners in Maine, Iowa and South Carolina have already requested your assistance. We urge continued collaboration between HHS and state regulators to ensure the MLR and rebate program do not have unintended consequences."

MLR and expatriate policies

Essentially, the NAIC recommends expatriate and international plans be exempt from the MLR limit and rebate, because these policies "contain inherently higher administrative costs" due to additional complexities of administering international coverage. If exemption isn't possible, adjustments should be made to their MLR percentage, and HHS should find another way to improve the quality of these policies. They also should be pooled differently to take into consideration their special situation.

Rebates

The NAIC determined it's not their responsibility under law to outline the details of the rebate program. But they do have some recommendations:

• Rebate payments should be made to the individuals or entities that paid the premiums. If the employer pays the premiums on behalf of the employees, then the rebate check should be sent to the employer for distribution to the enrollees. If the individual pays the premiums directly, then the rebate check should be sent directly to the individual. We also recommend that the Department of Labor provide guidance on the distribution of the rebate payments by employers to ensure the individual employees receive their fair share of rebate.
• Policyholders eligible for payment of a rebate should have the rebate paid in the form of either a premium credit against future premiums due or a check to the policyholder.
• The carriers should be required to make a good faith effort to locate the owner of the rebate check, for example, a phone call, e-mail, communication with the agent or broker, and an online search. Such good faith efforts would be subject to routine market conduct reviews by state insurance departments. If all attempts are unsuccessful, the returned rebate should be handled under abandoned state property laws.

When will NAIC give final MLR recommendations?

While final MLR recommendations are not due to HHS until Dec. 31, Secretary Sebelius has pushed for immediate guidance relating to filing forms and instructions so that the agency can issue regulations on forms in October, giving affected parties "adequate notice to prepare the filings."

The NAIC promptly turned down the request, saying it would send all its MLR recommendations at once. The letter issued on Oct. 13 states the association hopes to deliver a "final product" in October, but doesn't specify an exact date.