Reform’s Medical Loss Ratio Rule Out

The Department of Health and Human Services has released an interim final rule to implement medical loss ratio requirements for health insurers under the Accountable Care Act.

The rule is available now at the Federal Register's Public Inspection Desk at ofr.gov/inspection.aspx. It is scheduled for official publication on Dec. 1 and has an effective date of Jan. 1, 2011.

To reduce excessive administrative costs, the health reform law mandates that insurers spend a minimum amount of revenue from premiums on payment for clinical care. This is the "medical loss ratio" and the minimum level is set in the new law at 85 percent for the large group market and 80 percent for the small group market.

Insurers have been negotiating with federal regulators on what activities will be counted as administrative, and which of those activities could be considered as clinical functions beyond treatment, such as preventive and disease management programs. In other words, insurers hope to get to the 15 percent to 20 percent administrative threshold by having some costs that now are considered administrative counted on the clinical side.

Some organizations, particularly the Medical Group Management Association, hope the medical loss ratio requirement compels insurers to become more efficient on the administration side and accelerate adoption of standards-based electronic financial and administrative transactions.

--Joseph Goedert