Last week, NCMS reported on Insurance Commissioner Wayne Goodwin’s request of the federal government to grant a statewide waiver from the Medical Loss Ratio (MLR) provision contained in the Patient Protection and Affordable Care Act of 2010 (ACA).  In the individual market the MLR provision of the ACA requires health plans to spend at least 80 percent of premium dollars collected on health care and quality initiatives, and 20 percent or less on administrative expenses. (Read more about the MLR by clicking here and here.) If granted, the waiver would allow health plans to meet a 72 percent medical loss ratio in 2011, with the percentage increasing incrementally each year until reaching 80 percent in 2014.

After having the opportunity to discuss the waiver request with the Commissioner and NC Department of Insurance staff, the NCMS understands that the Commissioner’s request was based on his concern that full implementation of the MLR this year could destabilize the health insurance marketplace in North Carolina. The NCMS does support limitations on the non-medical spending of health plans similar to those found in the MLR provision of the ACA. Due to time constraints and the sensitivity involved with such a request, the NCDOI told NCMS it was unable to consult with all affected stakeholders. However, the Commissioner acknowledged and understood the interest that physicians and patients have in ensuring that health plans are held accountable for how plans spend premium dollars.

The Medicare primary care incentive payment program runs from January 1, 2011 to January 1, 2016. “All” primary care practitioners receive the ten percent incentive payment as long as they meet the definition of “primary care practitioner” and perform “primary care services” as outlined in The Affordable Care Act.  Payments will be made on a quarterly basis.

Section 5501(a)(2)(A) of The Affordable Care Act defines a primary care practitioner as:

• A physician who has a primary specialty designation of family medicine, internal medicine, geriatric medicine, or pediatric medicine; or

• A nurse practitioner, clinical nurse specialist, or physician assistant for whom primary care services accounted for at least 60 percent of the allowed charges under the Physician Fee Schedule (PFS) for the practitioner in a prior period as determined appropriate by the Secretary of Health and Human Services.

Section 5501(a)(2)(B) of The Affordable Care Act defines primary care services as those services identified by the following Current Procedure Terminology (CPT) codes as of January 1, 2009 (and as subsequently modified by the Secretary of Health and Human Services, as applicable):

• 99201 through 99215 for new and established patient office or other outpatient Evaluation and Management (E/M) visits;

• 99304 through 99340 for initial, subsequent, discharge, and other nursing facility E/M services; new and established patient domiciliary, rest home (e.g., boarding home), or custodial care E/M services; and domiciliary, rest home (e.g., assisted living facility), or home care plan oversight services; and

• 99341 through 99350 for new and established patient home E/M visits.

Any primary care provider meeting this definition will receive quarterly incentive payments equal to 10% of the reimbursement rate of eligible codes used.

Click here to access the NCMS Health System Reform Resource Center.

The NCMS provided information last year regarding the financial impact of the Affordable Care Act’s Medicaid expansion in North Carolina (read “Expanding Role of Medicaid, Bulletin, 8-20-10).  This week we’d like to update those numbers to provide a clearer sense of the budgetary impacts of the Medicaid expansion to occur between the years of 2014 and 2019.

• New NC Medicaid Enrollees by 2019: 633,485 – 877,560 depending on outreach efforts of state and federal government.
• Previously uninsured, newly enrolled in Medicaid by 2019: 429,272 – 661,292 depending on outreach efforts of state and federal government. Costing state $811 million  - $932 million.
• Total State expenditures on expansion: $ 1 billion – $1.8 billion.

Source: Kaiser Commission on Medicaid and the Uninsured

Changes have been implemented in the Medicaid program in 2011:

• States will now have the option to permit certain Medicaid enrollees to designate a provider as their health home. States will receive 90% FMAP for 2 years for these services.
• Health and Human Services can begin providing 3 year grants to states to develop chronic disease prevention programs under Medicaid.
• Prohibition on federal payments to states for Medicaid services related to certain hospital-acquired infections.
• State balancing incentive program created to provide enhanced FMAP payments for non-institutionally based long-term care services.

Be watching for more updates, particularly on state funding for Medicaid. When the General Assembly convenes next week, legislators are expected to take a close look at spending in order to address a multi-billion dollar shortfall.  Medicaid and education make up the largest portion of the state budget.

As we launch into a new year, the federal government also begins the next stage of Affordable Care Act (ACA) implementation. Below you’ll find a brief update of the provisions set to begin implementation this calendar year. All provisions are effective as of January 1, 2011 unless otherwise noted.

Insurance

• Insurers required to pay rebates if target medical loss ratio is exceeded.
• Health and Human Services to begin awarding grants to states for the establishment of American Health Benefit Exchanges and Small Business Health Options Program Exchanges. Effective March 23, 2011.
• CLASS (Community Living Assistance Services and Support Act) Program is established as a voluntary program for purchasing long-term care insurance.
• Over-the-counter drugs not prescribed by a doctor are excluded from Health Reimbursement Accounts and Flexible Spending Accounts.
• 20% tax on pre-tax distributions from HRAs or FSAs that are not used for qualified medical expenses.

Medicaid

• States will now have the option to permit certain Medicaid enrollees to designate a provider as their health home. States will receive 90% FMAP for 2 years for these services. 
• Health and Human Services can begin providing 3 year grants to states to develop chronic disease prevention programs under Medicaid.
• Prohibition on federal payments to states for Medicaid services related to certain hospital-acquired infections.
• State balancing incentive program created to provide enhanced FMAP payments for non-institutionally based long-term care services.

Medicare

• 10% bonus payments for primary care services and general surgeons in health professional shortage areas begin.
• Funding for the Independent Payment Advisory Board becomes available October 1, 2011.
• Waived deductible for colorectal cancer screenings and the elimination of cost-sharing for covered preventative services.
• Pharmaceutical manufacturers must begin providing a 50% discount on brand-name drugs filled in the Part D coverage gap.
• Part D premium subsidies for high-income beneficiaries reduced.
• Medicare Advantage payments restructured by phasing-in lower fee-for-service rates.  Prohibits plans from imposing higher cost-sharing requirements on some benefits.

Miscellaneous

• Chain restaurants and vending machines required to disclose nutritional content of standard menu items beginning March 23, 2011.
• Unused GME residency slots will be redistributed beginning July 1, 2011.

To follow the recent Focus article describing the new Annual Wellness Visit, this article will list some additional new preventive care services that are available to Medicare beneficiaries with no coinsurance requirements as of January 1, 2011.  Section 4104 of the PPACA expands Medicare coverage to cover at 100% those preventive services recommended (rated A or B) by the U.S. Preventive Services Task Force.  Beneficiaries are not required to first meet their annual Part B deductibles before receiving these services or before physicians are compensated for providing the care.

The U.S. Preventive Services Task Force has given the following services an A or B rating:

• Abdominal aortic aneurysm screening for men (age 65 to 75)
• Alcohol misuse counseling
• Aspirin to prevent CVD for men (age 45 to 79) and women (age 55 to 79)
• Blood pressure screening
• BRCA screening, counseling
• Breast cancer preventive medication
• Breast cancer screening mammography for women
• Cervical cancer screening
• Cholesterol abnormalities screening
• Colorectal cancer screening
• Depression screening
• Diabetes screening
• Folic acid supplementation
• Healthy diet counseling
• Osteoporosis screening for women
• Sexually transmitted infection (STI) counseling and screenings
• Tobacco use counseling and interventions

View the full list of recommended services here.

Since 2005 Medicare patients have been eligible to receive an Initial Preventive Physical Exam, also known as the Welcome to Medicare Exam, within the first 12 months of enrollment.  In Section 4103 of the Patient Protection and Affordable Care Act, Congress again expanded Part B Medicare coverage to include an annual wellness visit at no out-of-pocket cost to the patient.  This benefit is available beginning January 1, 2011. 

CMS and local administrative carriers have been heavily promoting this new benefit and urging Part B patients to use it since the PPACA was enacted earlier this year.  The result has been a flood of calls from eligible beneficiaries to doctors offices looking to schedule their “free physical.”  But until this week very little useful information was available to medical practices on how to provide the service, when to provide the service, or how to bill the service.

The annual wellness visit includes a health risk assessment and the creation or review of a personalized prevention plan.  The prevention plan must include certain elements, such as patient medical history, family history, current providers and medications, a listing of risk factors, and more.  As for which patients are eligible, Medicare will make payment for an annual wellness visit if provided on or after January 1, 2011, for an individual who is no longer within 12 months after the effective date of his/her first Medicare Part B coverage period, and has not received either an initial preventive physical or an annual wellness visit in the last 12 months. 

Just yesterday CMS released a Medicare Learning Network Bulletin containing additional information to physician practices about how to administer and bill for the annual wellness visit.  It is important for you and your practice staff to review this document if you will be providing this service.  

Some other details that NCMS has learned:

• CMS is creating 2 new HCPCS codes for billing these procedures – G0438 (first annual wellness visit with prevention plan) and G0439 (subsequent annual wellness visit with prevention plan).
•  These codes are valued for payment under the Medicare Physician Fee Schedule using a crosswalk methodology from the Level 4 new and established patient office or other outpatient visit CPT codes.
• The CPT code for a medically necessary E/M visit may be reported and amended with CPT modifier -25 to designate the E/M visit as a separately identifiable service from the annual wellness visit when both are provided in the same encounter.

Affected physician offices should also watch for additional details from CIGNA Government Services on this item or contact NCMS if any problems arise when administering or billing for the annual wellness visit.

The Medicaid and CHIP Payment and Access Commission (MACPAC) has existed since 2009 with the passage of the Children’s Health Insurance Program Reauthorization Act.  The Affordable Care Act of 2010 expanded the MACPAC and tasked it with reviewing state and federal Medicaid and CHIP access and payment policies and making recommendations to Congress, the Secretary of Health and Human Services (HHS), and states on a wide range of issues affecting Medicaid and CHIP populations.

Diane Rowland, ScD, longtime head of the Kaiser Commission on Medicaid and the Uninsured, now chairs the MACPAC and will be leading the group’s efforts to work with individual states to develop policies and recommendations with the goal of reducing costs and improving quality. 

Four physicians sit on the 17 member Commission.  The Commission holds it public meetings in Washington, DC and seeks stakeholder input from both state Medicaid directors and the general public via their website MacPac.gov.  This week the MACPAC met to discuss topics such as: prudent purchasing in Medicaid, advancing children’s access to dental services and coordinating care for dual-eligibles.

 Comments regarding any meeting agenda may be submitted from the time the agenda is made public and for two weeks thereafter.

The NCMS has received questions in recent weeks regarding the impact of the Affordable Care Act (ACA) on non-discrimination testing for employer-sponsored health plans. Section 1001 of the ACA amends Sec. 2716 of the Public Health Service Act, extending IRS non-discrimination requirements (IRS Code 105(h)) that previously only applied to self-insured plans to all fully insured, non-grandfathered plans beginning as they renew on or after September 23, 2010.

This means that health plans cannot discriminate in favor of “highly compensated individuals” regarding eligibility to participate in a plan or the benefits offered by plans. The term “highly compensated individual” is defined in the Internal Revenue Code.

For a plan to be considered non-discriminatory with respect to eligibility, it must pass one of three tests.

• 70% of all employees must benefit under the plan
• The plan benefits 80% of eligible employees and 70% of all employees are eligible.
• The plan benefits a non-discriminatory classification of employees.

(Some employees are excluded from these tests, including those who have less than 3 years of service, are younger than 25, are part-time or seasonal employees, those covered under a collective bargaining agreement or non-resident aliens.)

The Internal Revenue Code indicates that a plan must provide the same benefits for both highly compensated and non-highly compensated employees.  A plan is considered to discriminate in terms of benefits unless all benefits provided for highly compensated participants are provided to all other participants.  All dependent benefits available for highly compensated employees must also be available for all other employee dependents. Plans cannot make benefit reimbursements proportional to compensation and the eligibility tests apply to benefits subject to reimbursement not to actual payments or claims.

If optional benefits such as dental and vision plans are offered, they must be offered to all employees with the same or no premium.

Compliance regulations are expected to come from the Dept. of Labor and IRS regarding tax consequences for violation.

The Affordable Care Act is funded through a number of taxes and fees collected from the health care sector, employers and some taxes on high-income individuals.  With these fees come tax credits for small business owners which could include physicians in their roles as employers and as individual taxpayers.  Below is a brief synopsis of the fees and credits that may impact you and your practice as the ACA reaches full implementation.

Individual Penalties and Subsidies

• Individual Mandate: Individuals must obtain minimum essential coverage for themselves and their dependents, effective 2014, with limited exceptions. Those without coverage will pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family, or 2.5 percent of household income. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee; or 1.0 percent of taxable income in 2014, 2.0 percent in 2015, and 2.5 percent in 2016.
• Medicare Payroll Tax: Effective 2013, the Medicare Part A payroll tax will increase by 0.9 % on workers earning more than $200,000 and joint filers earning more than $250,000. In addition, a 3.8 % Medicare tax will be imposed on net investment income from interest, dividends, annuities, royalties, rents and taxable net gain for these same individuals.
• Deductions for Medical Expenses: Beginning in 2013, the threshold for claiming the itemized tax deduction for unreimbursed medical expenses will increase from 7.5 to 10% for those under 65. The increased threshold applies to individuals 65 years and older in 2017.
• Flexible Savings Accounts: Contributions are capped at $2,500 beginning in 2013.

Employer Penalties and Subsidies

• Employers of 50 or less are exempt from the requirement to provide health coverage.
• Large  Employers: Beginning in 2014, Employers with over 50 FTEs that do not offer coverage and have at least one FTE who obtains coverage through an exchange and qualifies for an individual tax credit or subsidy will be assessed $2,000 multiplied by the number of full-time employees in excess of 30. If an employer offers coverage but has at least one employee who is entitled to a tax credit because the employer’s plan is too costly, the penalty is $3,000 for each employee receiving a credit or $2,000 for each full-time employee, whichever is less.
• Subsidies for Small Businesses: Small business tax credits will be available to employers with 25 or fewer employees with average annual wages below $50,000 if they purchase health insurance for their employees. For tax years 2010 through 2013, the credit can be up to 35% of the employer’s contribution toward the premium, provided the employer contributes at least 50% of the total premium cost. According to the IRS, the wages and hours of physician business owners and partners will not be counted in calculating either the number of full-time employees or the average annual wages.

• Medicare Part D: Effective 2013, employers that currently sponsor retiree prescription drug plans will no longer be able to deduct amounts contributed. However, future Medicare Part D subsidies will remain tax-free to the employer.
• Health Insurance Company Compensation: Effective 2013, the deduction for executive and employee compensation for health insurance providers is limited to $500,000 per applicable individual.

Health Care Sector Taxes and Fees

• Annual fee on Health Insurance Providers: Beginning in 2014 a fee will be applied to the net premiums of all health insurers based upon their share of the market.  Assessments for non-profit insurers will be based upon half of their net premiums and those with high levels of government funding will be completely exempt from the fee. However plans who simply underwrite government programs will not be exempted.
• Annual fee on Pharmaceutical Companies and Medical Device Manufacturers: These fees will begin in 2011 and are based upon annual sales figures. Specific revenue targets are set for each year of implementation. By 2013, an annual 2.3 % tax will be placed on Class I medical devices by manufacturers, producers or importers. This includes most orthotics and prosthetics, as well as durable medical equipment. Eyeglasses, contact lenses and hearing aids are all exempted.
• Excise Tax on High Cost Health Plans:  Beginning in 2018, a 40% excise tax will be imposed on insurers of high-cost, employer-sponsored health plans with aggregate values exceeding $10,200 for individual coverage and $27,500 for family coverage. Employers that make contributions to a health savings account (HSA) or medical savings account (MSA) must pay the excise tax if those contributions exceed the thresholds.
• Student Loan Tax Relief: Payments made under any state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas will be excluded from gross income.

Physicians who choose to participate in Medicare must enroll with the program in order to submit claims for reimbursement.  Part of the enrollment and re-enrollment application prompts physicians to disclose specific information about any billing agencies that the physician uses to submit claims to Medicare.

As part of a broader effort to reduce fraud and abuse in Medicaid, the Patient Protection and Affordable Care Act prompts each State to require “any agent, clearinghouse, or other alternate payee that submits claims on behalf of a health care provider must register with the State and the Secretary [of U.S. Department of Health and Human Services].”  Sec. 6503.  To clarify, the federal registration will most likely be handled by CMS.

Federal rules detailing this new billing agent registration process and defining the term “alternate payee” have not yet emerged.  In North Carolina, the Division of Medical Assistance is currently working with stakeholder groups, including the North Carolina Medical Society, to identify straightforward options for how this new requirement will be folded into Medicaid.

This provision of the PPACA takes effect January 1, 2011.  However, if legislation is required for the State to implement this provision, then the effective date may be pushed later into 2011.  NCMS will update this article as more information becomes available.

The Patient Protection and Affordable Care Act places many new disclosure requirements on pharmaceutical and medical device manufacturers regarding the payment or “transfers of value” from such companies to physicians or teaching hospitals.

Beginning on April 1, 2012 and annually thereafter, each manufacturer and authorized distributor of record of an applicable drug shall report the name, quantity and dosage of all drug samples given to physician offices as well as the date that the samples were provided (sect. 6004).  The name, address, professional designation and authorized signature for the practitioner receiving the drugs must also be reported for all sample distributions.  Manufacturers or distributors of record are also required to report any theft or losses of samples to the Secretary of Health and Human Services. 

Under current law manufacturers and distributors are only required to make this information available to HHS if requested. In 2012 companies are required to begin proactively reporting the information which will be made available to the public.

It is important to note that under this section of the new law, the Secretary of Health and Human Services can require that any other category of information also be reported.  It is uncertain if a formal rule-making procedure would be necessary to make such a change.

The Affordable Care Act does not seem to direct new requirements on individual physicians or practices to report information regarding drug samples. However, it is possible that the increased reporting requirements for manufacturers and distributors of drug samples may result in additional administrative obligations for medical practices.

As detailed in a previous Focus article, the Patient Protection and Affordable Care Act (PPACA) charges the National Association of Insurance Commissioners (NAIC) with the initial development of rules for the Medical Loss Ratio (MLR) by December 31, 2010. Late last week, and as reported in the NCMS Bulletin, October 22, 2010, the NAIC officially adopted its model regulation for submission to the U.S. Secretary of Health and Human Services Kathleen Sibelius. With the NAIC’s recommendations now complete, it will now be up to the Secretary to decide whether she will promulgate the model regulation as is, or make changes.

A huge question of importance is what expenses may a health plan count towards quality improvement, since health plans can count “quality improvement expenses” within the 85% or 80% part of the ratio.  The NAIC describes that term as “all plan activities that are designed to improve health care quality and increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements.”  The expenses must be directed toward individual enrollees and should be grounded in evidence-based medicine.  Some broad categories of those expenses include:

• Costs for improving health outcomes
• Improving patient safety and reducing medical errors
• Hospital readmission prevention activities
• Wellness & health promotion activities
• HIT expenses for health care quality improvements

More specific examples within each of these categories can be reviewed in the model regulation.  For physicians, the items that do not count as quality are as important as those that do.  The NAIC listed some examples of expenses that would not count as quality improvement:

• Retrospective and concurrent utilization review
• Fraud prevention activities
• Developing and executing provider contracts and maintaining a provider network
• Provider credentialing

The model regulation also details how a health plan must calculate rebate amounts due to their members if the health plan fails to achieve the prescribed MLR.

The NCMS will continue to monitor actions at the federal level concerning the medical loss ratio as it moves toward final adoption.

The Department of Health and Human Services (HHS) has created many new offices and staff teams to implement provisions of the Affordable Care Act (ACA). The Centers for Medicare & Medicaid Services (CMS) has also undergone some reorganization in order to enact the many reforms, pilot programs and demonstration projects set for implementation in the coming years. Below you’ll find a list of new key offices within HHS and CMS that were created by the ACA and will help implement the new law.

Center for Medicare

This Center combines the operations of the Medicare fee-for-service program, Medicare managed care and the Medicare prescription drug benefit. The Center for Medicare is responsible for the CMS proposed rulemaking on the shared savings/ACO pilot that will begin in 2012.

Center for Medicare and Medicaid Innovation

The CMS Center for Medicare and Medicaid Innovation (CMMI) will test new payment and care delivery models with the goal of reducing program expenditures and improving the quality of patient care. The Center is charged with giving preference to those that improve coordination, quality and efficiency of health care services to Medicare and Medicaid beneficiaries.

The CMMI is expected to announce its plans for providing technical assistance directly to physicians—specifically those in smaller practices—to help them participate in ACOs. This effort is separate from and in addition to the ACO/shared savings pilot program authorized in the ACA.

Office of Consumer Information and Insurance Oversight (OCIIO)

The OCIIO is tasked with implementing the ACA’s private insurance reforms.  According to HHS, the “office is responsible for ensuring compliance with the new insurance market rules, such as the prohibitions on rescissions and on pre-existing condition exclusions for children that take effect this year. It will oversee the new medical-loss ratio rules and will assist states in reviewing insurance rates. It will provide guidance and oversight for the state-based insurance exchanges. It will also administer the temporary high-risk pool program and the early retiree reinsurance program, and compile and maintain data for an internet portal providing information on insurance options.”

Office of Delivery System Reform

This office will oversee efforts to promote payment and delivery reforms, such as accountable care organizations (ACOs).  While these pilots and demonstrations will be directly implemented by CMS, the Secretary has wide discretion on many key aspects of these reforms.

Center for Strategic Planning

The Center oversees the Office of Research, Development, and Information (ORDI), which is responsible for CMS demonstration projects such as the ongoing acute care episode bundling demonstration and the physician group practice demonstration. ORDI will oversee new payment and delivery demonstration projects authorized by the ACA, such as bundling and the medical home.

There are several initiatives being undertaken by the Department of Health and Human Services to implement the program integrity provisions found in the Affordable Care Act (ACA).

PECOS, Referrals and Orders

Physicians who refer or order (except those who have opted out) are required to be enrolled in the Provider Enrollment, Chain, and Ownership System (PECOS) database. This includes physicians who have been enrolled for decades, but are not in the PECOS database.

All physicians will need to re-enroll if they are not currently in the PECOS database or have opted out. Other physicians who never bill Medicare—TRICARE physicians for example—will also need to enroll if they want to continue referring and ordering services for patients who see Medicare doctors.

Practice-based compliance programs

The law directs HHS to establish the essential elements of a compliance program that physicians must meet in order to enroll in Medicare, Medicaid and other federal health care programs. On September 21st HHS issued a proposed rule for the establishment of these essential elements.

The proposed rule would:

• Screen physicians participating in Medicare, Medicaid and the Children’s Health Insurance Program, including licensure and database checks, unannounced site visits, and criminal background checks and fingerprinting for those in the highest risk category.
• Impose a $500 application fee for hospitals beginning March 23, 2011.
• Allow the government to place a temporary moratorium on the enrollment of new Medicare physicians if high-risk fraud trends are detected.
• Suspend payments in cases where there is a credible allegation of fraud against a physician or supplier.
• Require state Medicaid programs to deny or terminate a physician who had billing privileges revoked under Medicare, CHIP, or another state’s Medicaid program.

Comments on the proposed rule are due to CMS by 5 PM on November 16, 2010. View the posting in the Federal Register here.

Exception to prohibition on self-referral and mandatory notification and disclosure

As part of the health system reform law, physicians who rely on the in-office ancillary services exception to the prohibition on physician self-referral will be required to inform patients in writing at the time they order magnetic resonance imaging, computed tomography and positron emission tomography that the patient may obtain these services elsewhere.

They must also provide the patient with a written list of those who furnish such services. In the recently released proposed fee schedule rule, HHS issued proposed regulations that would require covered physicians to provide the disclosure for services furnished on or after the effective date of the final regulation which is anticipated to be Jan. 1, 2011.

The Affordable Care Act (ACA) requires insurers to report annually to the Department of Health and Human Services (DHHS) the percentage of health care premium dollars spent to reimburse providers for health care services and on quality improvement measures – known as the Medical Loss Ratio (also referred to as the Medical Care Ratio).

The ACA also limits the medical-loss ratio for large group health insurance plans to 85% and 80% for small and individual group products (Read more about this in a related article from June 2010). The law specifically requires the National Association of Insurance Commissioners (NAIC) to develop recommendations for implementing these medical-loss ration provisions.

In response, the NAIC Executive Committee/Plenary approved the final version of a medical-loss ratio “blanks form” earlier this year. Significant debate was held to determine what types of expenses can be considered “quality improvement” and not “administrative and included in the loss ratio expense category.

The medical-loss ratio blanks proposal requires insurers to document expenditures through a transparent process.  Full disclosure of how premiums are spent will empower physicians and patients to make more informed decisions, improve their ability to negotiate contracts and choose the best plans.

With a clearly defined and strict limitation on how administrative expenses are spent, insurers can no longer spend excessive amounts of premium dollars on executive salaries, marketing and other costs not related to patient care.

The NAIC began drafting recommendations for the medical-loss ratio “blanks form” and draft regulation in April. The blanks form is the actual worksheet submitted by an insurance company to report financial data to state insurance commissioners. The form collects data from individual and small-group employers and large-group employers as follows:

• Income and expenses including but not limited to total and types of premiums earned; total and types of claims incurred; general and administrative expenses; incurred incentives pools and bonuses; deductible fraud and abuse detection and recovery expenses
• Documentation of how administrative expenses are spent, including salaries, outsourced services, data processing software, accreditation, taxes, licenses and fees; this data is collected for separate types of insurers, including individual and small-group employers and large-group employers
• Information about quality improvement expenses, including allowable health information technology costs; expenses that have a nexus to patient benefit are considered “quality improvement”; expenses considered to not have a direct patient benefit nexus and expressly excluded include retrospective and concurrent utilization review, fraud prevention activities unrelated to detection and recovery, costs related to provider networks and contracting fees, marketing and credentialing

Upon receipt of the blanks form, insurance commissioners will review the data to calculate whether the insurer has complied with the medical-loss ratio requirements. If an insurer spends less than its allocated 80 or 85 percent of premium dollars on patients, the ACA requires the insurer to rebate the enrollee for the amount in excess of the statutory percentage.

The NAIC continues to develop recommendations for the final regulation and implementation of the new Medical Loss Ratio standards brought about by the ACA.