The National Association of Insurance Commissioners (NAIC) on October 21, 2010 adopted a model medical loss ratio (MLR) regulation that – once approved by the Department of Health and Human Services – will implement the Patient Protection and Affordable Care Act’s requirement that insurers spend at least 85 percent of premiums on claims and quality improvements for large group plans, and at least 80 percent of premiums for small group and individual plans. Insurers who fail to do so by 2011 must refund the difference to policy holders beginning in 2012.
NAIC’s model regulation includes several provisions that the insurance industry opposed. For example, the model regulation requires insurers to calculate MLRs on a state-by-state basis; insurers called for a transition period in which MLRs would be calculated on a nation-wide basis. Insurers also hoped for higher credibility adjustment provisions than those included in the model regulation. Credibility adjustments allow insurers to take into account statistical variability (i.e., high cost, low frequency claims) when calculating MLRs. The model regulation limits credibility adjustments to very small blocks of covered lives.
The MLR model regulation is available on the NAIC website.