New rule ignites fight over insurer profits

A sweeping new Obama administration regulation is reigniting the debate over the profits of health insurance companies. 

The rule, released late Tuesday, states that insurance companies that manage Medicaid plans have to spend at least 85 percent of their revenues on medical care, as opposed to profit or administrative expenses.

Similar limits, known as a medical loss ratio, were imposed on commercial insurance plans during the implementation of ObamaCare. 

{mosads}Insurers are now dusting off their arguments that the categorization of different expenses lacks reasoning and ends up restricting important spending that isn’t directly related to medical care. 

“An arbitrary cap on health plans’ administrative costs could undermine many of the critical services — beyond medical care — that make a difference in improving health outcomes for beneficiaries, such as transportation to and from appointments, social services, and more,” Dan Durham, interim CEO of America’s Health Insurance Plans, said in a statement. 

The White House has hammered insurance companies over their profits, using the issue to boost public support for ObamaCare. 

In 2013, President Obama invited Americans to the White House who had received rebates from insurance companies that fell short of the Affordable Care Act’s limit on administrative expenses.

“What do opponents of this law think the folks here today should do with the money they were reimbursed?” Obama said then. “Should they send it back to the insurance companies? Do they think that was a bad idea to make sure that insurance companies are being held accountable?”

Insurers are wary of again being singled out as corporate villains in the fight over the Medicaid regulation.

“I think that definitely will be a concern from the media perspective and the public relations perspective,” said Lindy Hinman, senior vice president at Avalere Health, a consulting firm. 

But it’s possible that the battle over the Medicaid regulation, a dense rule that spans some 653 pages, will draw less public attention than the bruising fight over the ObamaCare limits.

“We’ve already been through it once,” Hinman said. “Maybe this will garner less public interest.”

Either way, insurers are gearing up to challenge the proposed regulation before it is finalized. One insurance industry representative compared the coming push to the successful campaign against changes to insurer payments under Medicare Advantage.

Jeff Myers, CEO of Medicaid Health Plans of America, a trade group, said that his organization would be working with governors and state Medicaid directors to try to convince the administration to change the proposal. 

He pointed to the difference between Medicaid and the commercial plans being restricted under ObamaCare. 

Under what’s known as Medicaid managed care, states contract with private insurance companies to provide healthcare for poor beneficiaries, as opposed to the state paying for care directly under traditional Medicaid. 

Medicaid managed care has grown quickly in recent years, with 39 states using it in some form and more than 40 million people enrolled. The new limits on insurers’ profits and overhead are part of wide-ranging new regulations on these plans. 

Myers said the set-up negates the need for a federal medical loss ratio, because individual states are already holding insurers accountable by negotiating contracts with them over how much the insurers are paid to provide the Medicaid coverage. 

“Making a uniform, federalized [rule] makes little if any sense,” he said. 

But the administration’s Centers for Medicare and Medicaid Services points to the goal of “aligning” Medicaid managed care with other plans, which were restricted by ObamaCare. It noted that Medicaid managed care plans are “currently the only major health care programs to which a MLR standard does not apply.”

In contrast to ObamaCare, though, insurers will not have to pay customers rebates if they fall short of the Medicaid limits. Instead, the limits will be enforced by state decisions on how much to pay insurers for the care they cover. 

Experts say it is unclear how much insurers will have to change to make sure that they are spending at least 85 percent of revenue on medical claims. 

Data from the Kaiser Family Foundation show that, as of 2013, in all but eight states, the average medical loss ratio was already at or above 85 percent. 

Still, Myers argues the federal government is imposing a burden that the states should be able to handle. 

The federal requirement, he said, “would suggest that the states are not using their fiduciary responsibility to manage their own money.”