OKLAHOMA CITY –Oklahoma Insurance Commissioner John D. Doak expressed grave disappointment Wednesday that Oklahoma’s request for a waiver on Medical Loss Ratio requirements from the U.S. Department of Health and Human Services was rejected.
Announcement of the rejection came yesterday from Washington.
“This decision could lead to a massive disruption of our insurance markets in Oklahoma,” Doak said in response.
The Medical Loss Ratio (MLR) in essence is a calculation of what percentage of each policyholder dollar is spent on delivering benefits or improving care, versus how much is spent on administration and profits. The Patient Protection and Affordable Care Act (PPACA) has set an 80 percent minimum MLR for companies doing business in the individual and small-group health insurance markets; an 85 percent MLR for large-group plans.
Oklahoma Insurance Department in September sought a gradual phase-in of the 80 percent ratio in the individual market only, rather than immediate and strict enforcement of those targets by the Department of Health and Human Services (HHS). No changes were requested by Oklahoma for the small-group and large-group markets.
Noting the disproportionate and potentially damaging effect of the high MLR on certain smaller companies and the possible impact in particular on Oklahoma’s rural communities, Doak requested that insurers be required to meet a 65 percent MLR for 2011, 70 percent in 2012 and 75 percent in 2013, with full compliance with the 80-percent standard for individual policies by the time the bulk of PPACA’s provisions are fully in force in 2014.
“We asked for a decision that would first and foremost do no harm to the current markets,” said Mike Rhoads, Deputy Commissioner of Life and Health Insurance at OID. “We wanted to keep coverage available, to keep all carriers large and small in our individual market.”
Meeting MLR requirements should be easier for much larger carriers, which can spread the cost of administration over a vast base of policyholders.
Conversely, Doak believes certain smaller companies might be forced to comply with PPACA’s MLR provisions by reductions in force that destroy Oklahoma jobs, meanwhile limiting consumers’ access to the counsel of licensed agents and decreasing the availability of customer service to policyholders. Some small companies might decide to leave the Oklahoma market altogether, surrendering progressively larger segments of the market to one or two major carriers and reducing consumer choice.
“Competition fosters innovation in the type of insurance products available, competitive pricing that reduces policyholder premiums, and attention to detail in customer service as a means of retaining business,” Doak said. “Simply put, competition is good for consumers and these MLR requirements could very well reduce competition in Oklahoma’s insurance markets.”
Some critics of the MLR requirements suggest that driving smaller companies out of the insurance business is an unstated goal of the law. Eliminating competition from the insurance markets brings those who advocate a single-payer health-care system much closer to that goal. In the meantime, Washington – which due to the Dodd-Frank Wall Street reform bill now operates its own Federal Insurance Office allegedly to augment state regulation – would prefer to regulate a few huge companies rather than many smaller ones.
“Consumers should ask themselves whether that’s worked in their favor with banks,” said Doak, who has taken a public position against the new Federal Insurance Office.
Doak added that MLR isn’t a reliable means of determining an insurance company’s effectiveness to consumers. Some Oklahoma companies that will struggle to meet the MLR requirements are nonetheless price-competitive with other companies that do or will meet the MLR threshold. Small carriers also frequently serve rural markets in which larger carriers have less or no interest in doing business, providing conscientious, personalized customer service to Oklahoma policyholders.
“MLR is an arbitrary and superficial means of judging the worth of an insurance company to its policyholders,” Doak said. “Just because one company is able to attribute a smaller percentage of its operating costs to each policyholder does not necessarily mean its policyholders received a greater value for their dollar.”
The request made of HHS by Oklahoma is similar to waivers sought by numerous other states. States that have received approval include Maine, Georgia, New Hampshire, Iowa, Kentucky and Nevada.
Doak said the volume of waiver requests and the varying decisions rendered by HHS are further indication of how federal health reforms are negatively impacting state markets. Oklahoma’s Insurance Commissioner has been one of the nation’s most vocal in the call to overturn PPACA.
“We look forward to the coming months as the Supreme Court will hear challenges filed against this law, and I look forward the eventual, total repeal of the Act,” Doak said.