UPDATE 1-US states group OKs tough health insurance rules
* Proposal aims to push more dollars to medical care-NAIC
* Recommendations go to HHS next week for final approval
* Insurers must adopt spending rules Jan. 1
* Industry share index down nearly 1 pct (Adds reaction, share prices, byline)
By Susan Heavey
WASHINGTON, Oct 21 (Reuters) - U.S. state insurance commissioners unanimously backed tough rules requiring health insurance companies to direct more of the premiums they collect to medical care, rather than corporate salaries and profits.
Although the percentages are mandated in the new healthcare law, insurers including Aetna Inc (AET.N) and WellPoint Inc (WLP.N) sought looser definitions of some spending, arguing changes were needed for them to stay competitive.
In a final vote on the recommendations, called for under the new law, the National Association of Insurance Commissioners (NAIC) on Thursday rejected most of the insurance industry's requests.
NAIC's proposal moves early next week to the Department of Health and Human Services, which will decide whether to adopt the proposals as regulation or first make changes.
By law, the changes must take effect by Jan. 1.
The Morgan Stanley Healthcare Payor Index .HMO was down 0.9 percent in Thursday afternoon trading, compared with the broad S&P 500 Index which was up 0.1 percent.
Consumer advocates and Democratic lawmakers had argued for strict limits on the industry, which has come under fire for rising rates and denial of coverage.
Under the law passed in March, large group health plans must allocate at least 85 cents per premium dollar to medical care, not administrative costs or profit. Plans for individuals or small groups must spend 80 cents per dollar.
Such spending ratios, known as a medical-loss ratio, or MLR, have been closely watched by Wall Street as a sign of potential profitability. Under the law, customers could see rebates if insurers spend less than required on care.
"This is placing on them some pretty stringent requirements," Kansas Insurance Commissioner Sandy Praeger, head of a NAIC working committee, said of insurers.
The goal is to ensure that when individuals or employers buy coverage "that a good portion of that premium dollar goes to medical activities and is not just being used to enhance profits or enhance large salaries," she told reporters.
Insurers argue that the restrictions will handicap smaller companies with limited resources or hit others with plans for small groups or individuals that can be expensive to operate.
"The current MLR proposal will reduce competition, disrupt coverage, and threaten patients' access to health plans' quality improvement services," America's Health Insurance Plans President and Chief Executive Karen Ignagni said.
NAIC did allow insurers to deduct most taxes in calculating spending, an industry win that Democrats had fought.
But it rejected insurers' pleas to measure spending ratios on a nationwide basis, sticking with state-by-state calculations.
U.S. Health Secretary Kathleen Sebelius has said the agency would like to move on the regulations this month, although some analysts do not expect action until November. (Reporting by Susan Heavey; Editing by Maureen Bavdek and Tim Dobbyn)
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