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 law at 85 percent for the large group market and 80 percent for the small group market. Insurers now are 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 to 20 percent administrative threshold by having some administrative costs now counted on the clinical side.

The Medical Group Management Association is recommending that calculations of insurers' medical loss ratio include, "as an element of the insurer's administrative cost, claims payment administrative expenses incurred by providers," according to a comment letter to federal officials. "Insurers' failure to adopt simplified, standardized, automated processes for administrative transactions involved in claims payments results in significant unnecessary administrative costs to all categories of providers. Failure to include these costs in the medical loss ratio definition deprives practices and ultimately their patients of resources that should be allocated towards patient care."

Englewood, Colo.-based MGMA in its letter notes that that the reform law includes provisions to tighten HIPAA standards for electronic claims and related transactions. By including providers' onerous administrative costs in the calculation of health plan costs, "plans would be pressured to more quickly standardize, simplify and automate many of these interactions between plans and medical providers."

For the complete letter, click here.

--Joseph Goedert


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