U.S. health insurers get final spending rules

WASHINGTON/NEW YORK Mon Nov 22, 2010 5:19pm EST

A woman looks over the letter from Anthem Insurance as she works through her breast cancer issues at her home in Louisville, Kentucky, April 21, 2010. REUTERS/John Sommers II

A woman looks over the letter from Anthem Insurance as she works through her breast cancer issues at her home in Louisville, Kentucky, April 21, 2010.

Credit: Reuters/John Sommers II

WASHINGTON/NEW YORK (Reuters) - New U.S. health insurance spending rules aimed at ensuring more customer dollars go toward medical care were finalized on Monday, ending a source of uncertainty for investors in the sector and boosting industry shares.

Although the limits are mandated in the new healthcare law, insurers such as Aetna Inc and WellPoint Inc did win some concessions from the U.S. government surrounding implementation of the rules and analysts saw the outcome as a positive for health insurers.

The rules on spending limits, known as a medical loss ratio or MLR, largely reflect earlier recommendations by a key group of state insurance regulators, and take effect in January.

"It appears that the industry got what it was hoping for," Joe France, an analyst with Gleacher & Co, told Reuters. "It should help the managed-care stocks ... There was some concern that the regulations would be more onerous."

Under the final rules unveiled by the Department of Health and Human Services (HHS), insurers can deduct federal and state taxes from premium dollars to help meet the new spending thresholds but not taxes on investments or capital gains.

States can also seek looser limits for up to three years, and the rules allow exemptions for smaller plans, new insurance offerings, and "mini-med" policies offering limited coverage.

"These regulations acknowledge the potential for individual insurance market disruption and take a first step toward minimizing such disruptions," said America's Health Insurance Plans President and CEO Karen Ignagni, whose group represents the industry.

Uncertainty over the rules has hung over health insurers. Companies have said they were waiting for the final rules before giving financial outlooks for next year.

Shares of health insurers closed up 1.7 percent on Monday, as measured by the S&P Managed Health Care Index, compared to the broader S&P 500 Index which ended down 0.2 percent.

Other insurers affected by the rules include Cigna, Humana and UnitedHealth Group.


The healthcare law requires large group health plans to 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.

If plans do not spend that much on care, policyholders get a rebate. HHS said on Monday up to 9 million Americans could be eligible for up to $1.4 billion in rebates starting in 2012.

The rules help "guarantee that consumers get the most out of their premium dollars," Health Secretary Kathleen Sebelius said, adding that "overhead costs contribute little or nothing to the care of patients and health of Americans."

In releasing the final rules, HHS officials said they followed the advice of the National Association of Insurance Commissioners (NAIC) on many issues such as taxes, state waivers and consumer rebates.

Some experts, from Wall Street analysts to state insurance officials, have openly worried the new spending limits could push some insurers out of certain markets, affecting not only company bottom lines but also consumer choice.

Consumer advocates also worried fewer options in some states could destabilize the market, especially since other new rules meant to boost demand for policies do not take effect until 2014, when Americans must buy coverage or face fines.

But HHS officials said on Monday that while some consumers are currently in plans that fail to meet the new spending rules, most insurers should be able adjust to meet the rules.


Consumer groups and Democrats, who passed the health law and soundly criticized the industry in the process, hailed the rules as a way to ensure buyers get the coverage they pay for.

"The goal of these requirements is ... to drive insurers to spend less money on bureaucracy and more on health care," said Lynn Quincy, senior health policy analyst for Consumers Union.

Senate Commerce Committee Chairman John Rockefeller welcomed the move, but said he would hold a hearing soon to investigate the type of coverage insurers plan to offer.

Still, there is room for insurers to maneuver.

Under the rules, states can seek some leeway for up to three years to help keep insurers from abandoning their market. The states will not be granted blanket waivers but can seek adjusted MLR spending limits. So far, Iowa, Georgia, Maine and South Carolina have sought such help.

Other industry exemptions include a one-year grace period for limited mini-medical plans that and generated headlines when some employers such as McDonald's Corp said they might stop offering them because of the rules. Plans for U.S. workers based overseas also have a one-year deferral.

Small plans with less than 75,000 enrollees in a state are also allowed to adjust their calculations because of their size, while companies offering a new insurance policy will have one year before having to meet the rules.

"We see several positive developments for the managed care sector," said Capital Alpha Partners analysts Kim Monk and Rob Smith.

(Reporting by Susan Heavey in Washington and Lewis Krauskopf in New York; Editing by Dave Zimmerman and Tim Dobbyn)

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Comments (9)
gunste wrote:
Until Fee-for-Service billing is modified greatly, the US cannot control its health care bills.

Nov 22, 2010 2:29pm EST  --  Report as abuse
yrvora wrote:
Look for health insurance premiums to go up as healthcare providers move towards compliance with the new ObamaCare rules regarding what percentage of premium goes towards healthcare and what goes towards administrative costs. My wife pays $412/mo premiums. Lets assume that only 65% goes towards heathcare and 35% towards administration costs. New rules will require 80% to go towards healthcare and only 20% towards admin cost. So in the example above $144.20 (35%) of the admin cost will somehow have to be trimmed to 20%. This is done simply by raising your premiums to $721 from $412 that I am paying. The admin cost of $144.2 will now be 20% of my new premiums (20% 0f $721=$144.2)meeting ObamaCare rules. The remainder %576.80 will go towards your medical care at higher cost. You will not get more medical care, but you will get the same medical care at higher rates.

Nov 22, 2010 3:01pm EST  --  Report as abuse
nosmtrthanu wrote:
or maybe your plan sucks. mine went up 8 bucks… and that was the buy-ups on health, scripts, dental and vision. me thinks your employer is getting over on you.
if americans took time to see if their health plan and employer were pulling the wool over their eyes, we wouldn’t need to hear from everyone playing the blame game.
do your job. take care of researching whether you employer is taking care of you, or the stinking shareholders.

Nov 22, 2010 6:23pm EST  --  Report as abuse
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