The Centers for Medicare and Medicaid Services has published a final rule, with a comment period, establishing health insurers' "medical loss ratios," including provisions to account for ICD-10 conversion costs.

Implementation of medical loss ratios is mandated under the Affordable Care Act. To reduce excessive costs, the reform law requires 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 at 85 percent for the large group market and 80 percent for the small group market.

This means administrative and other non-clinical costs can be no more than 15 to 20 percent of revenue. Insurers have been negotiating with regulators about what activities will be counted as administrative and what activities could be considered as clinical functions beyond treatment, such as preventive and disease management programs.

One way to shift costs over to the clinical side is to have them deemed a quality improvement activity. Under the final rule, being published on Dec. 7 and available now, ICD-10 conversion costs, of up to 0.3 percent of an insurer's earned premium in the relevant state market, can be counted as a quality improvement activity in 2012 and 2013.

ICD-10 maintenance costs and claims adjudication systems costs would be considered administrative costs and fall under the medical loss ratio.  CMS previously published an interim final rule for medical loss ratios in January 2011. The new rule makes modifications and "provides certainty to how the MLR is calculated," according to CMS.


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