Just what is a Medical Cost?


Last month, the National Association of Insurance Regulators (NAIC) approved a model regulation on Medical Loss Ratio (MLR) that includes definitions of what services provided by insurance companies should be counted towards their Medical Loss Ratio (MLR).  This has become an extremely hot topic due to The Accountable Care Act (ACA).

One of Congresses efforts to establish accountability by health plans was to mandate that health plans spend a minimum defined percentage of their premium revenue on medical care and “activities to improve health care quality”, which in aggregate are the numerator in the MLR with the total premium dollar and administrative expenses in the bottom part of the equation or denominator. Per the ACA, plans in the large employer segment must have an MLR that is at least 85%, while in the small and individual markets it must be at least 80%.

So what exactly can be counted under an insurer’s MLR? Well clearly claims or medical bills generated by hospitals, doctors, home health agencies and pharmaceuticals for their services to patients, but what of other activities such as medical management, quality, care and case management, systems that mine data looking for individuals that may need additional support or services, broker commissions, accreditation fees and conversion and implementation costs of the mandated change to ICD-10 as but a few examples.  Should these be counted or do they fall into the insurer’s administrative expense bucket? The more expenses the insurer incurs in various other services being lumped into MLR, the more they have left over after paying their remaining administrative fees for margin, as many plans have had MLR’s below the new thresholds.

As is typical within the health care realm, with hundreds of groups competing for trillions of dollars, it got a bit heated.  Advocacy groups wanted the strictest limits possible to be sure that insurers were spending the premium dollars only on direct medical care and a few other activities, while insurers wanted as much put into the MLR as possible to leave ample rooms for a margin. Various other groups got involved as well such as brokers, care coordination and disease management groups and many, many others.

One area of debate was what could be counted within  “Expenses to Improve Health Care Quality”, as part of the MLR.

From the NAIC Draft Model Regulations of October 14, 2010 and now approved and sent on to the Secretary of HHS:

Qualifying QI activities are primarily designed to achieve the following goals set out in Section 2717 of the PHSA and Section 1311 of the PPACA:

• Improve health outcomes including increasing the likelihood of desired outcomes compared to a baseline and reducing health disparities among specified populations;

• Prevent hospital readmissions;

• Improve patient safety and reduce medical errors, lower infection and mortality rates;

• Increase wellness and promote health activities; or

• Enhance the use of health care data to improve quality, transparency, and outcomes.

More specifically listed below are a few of the services that insurers can consider as covered under the MLR  within the “Improve Health Outcomes…” section:

case management, Care coordination, and Chronic Disease Management,

Medication and care compliance initiatives,

providing coaching or other support to encourage compliance with evidence based medicine;

Activities to identify and encourage evidence based medicine;

While under “Wellness and Health Promotion Activities” the following are some of the services which will be considered part of the MLR:

Wellness assessment;

Wellness/lifestyle coaching programs designed to achieve specific and measurable improvements;

Coaching programs designed to educate individuals on clinically effective methods for dealing with a specific chronic disease or condition;

This is good news for the consumers who will get access to the services they need to better manage their condition and navigate a very complex system.

The NAIC model regulation and with any luck the final MLR rule reflects a positive change in the way in which federal and state regulators consider (perhaps define) and account for care coordination, disease management, health promotion and wellness service in addition to being recognized as a necesary component of the transformation of our health care system.

The NAIC model regulation still need to be accepted by the Secretary of HHS, but based upon Secretary Sebelius’ recent statement that “These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers.” it appears acceptance as drafted is likely.

Thanks to the Care Continuum Alliance and the many groups and organizations that worked diligently defining the various services and ensuring that these proposed rules included coverage for those that will ultimately make the health care system better, more accountable and more effective.

A special thanks to Kip MacAurthur of the Care Continuum Alliance for her assistance with this post.

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About Fred Goldstein

President and Founder of Accountable Health, LLC. My background includes over 25 years of health care experience in hospital administration, health plan management, disease management and population health.
This entry was posted in Health Reform, Preventive Medicine, The Industry and tagged , , , , , , , , , , , , , , . Bookmark the permalink.

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