Michigan Denied Health Law Waiver by Federal Regulators

Posted on December 21, 2011 by Megan M. Hard

In August, we reported that Michigan had submitted an application to the Department of Health and Human Services (HHS) requesting a waiver of the Affordable Care Act's (ACA) medical loss ratio requirements for its individual health insurance, claiming that without a phase-in to the medical loss ratio requirements, many insurers would stop offering insurance in Michigan. Under the ACA, health insurers must spend 80% (individual and small group revenue) to 85% (large group revenue) of premiums on direct care for patients and efforts to improve care quality. This percentage is called the medical loss ratio (MLR). Starting in 2012, insurers who come short of the MLR must provide a rebate to their customers under the ACA.

Michigan's waiver application requested a phase-in of the MLR requirements between now and January 1, 2014.

HHS denied Michigan's request in full, finding that research in Michigan showed that most of its insurers were either profitable or adjusting business models to meet the 80% standard. This, according to HHS, showed no intent by the insurers to stop offering insurance in Michigan, and consequently that no waiver was justified.

Of the 17 states that have asked for adjustments to the MLR requirements, six have been turned down, five received partial exemptions, and only Maine had its full request approved. The rest of the applications remain outstanding.

Smith Haughey Rice & Roegge will continue to monitor this decision and its impact on Michigan.

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Michigan Requests Health Law Waiver

Posted on August 9, 2011 by Megan M. Hard

On July 28, 2011, Michigan submitted an application to the Department of Health and Human Services (HHS) requesting a waiver of the Affordable Care Act's (ACA) medical loss ratio requirements for its individual health insurance.

Many insurance companies spend a portion of consumers' premiums on administrative costs and profits, including executive salaries, overhead, and marketing. Under the ACA, consumers will receive more value for their premiums. New regulations require health insurers to spend 80% (individual and small group revenue) to 85% (large group revenue) of premiums on direct care for patients and efforts to improve care quality. This percentage is called the medical loss ratio (MLR). Starting in 2012, insurers who come short of the MLR must provide a rebate to their customers under the ACA.

To compensate for transitional difficulties, the ACA allows the Secretary of Heath and Human Services to adjust the MLR standard for a State "if it is determined that meeting the 80 percent medical loss ratio standard may destabilize the individual market and . . . result in fewer choices for consumers." On July 28, 2011, Michigan submitted an application to HHS, requesting an adjustment to the MLR standard. The request may be found here.

Michigan's application requests a phase-in of the MLR requirements between now and January 1, 2014 where the MLR for 2011 would be 65%, followed by 70% for 2012, and 75% for 2013. Michigan's request stated that without this adjustment to its MLR requirements, "fourteen (14) companies would be scheduled to issue rebates totaling $30.6 million, with eight (8) paying rebates in excess of their after tax profit for 2010." This could lead such insurance companies to stop offering health insurance in Michigan. Currently, "the market is dominated by one insurer, Blue Cross Blue Shield of Michigan, [who] already operates at an MLR [of 93%]." Thus, the loss of competitors could substantially reduce a consumer's choice of where to purchase health insurance. In addition to Michigan's request, U.S. House Representatives Dave Camp and Fred Upton have together submitted a letter to HHS in support of Michigan's adjustment.

According to the HHS website, Michigan's application is under review for completeness. Upon a finding by HHS that the application is complete, public comment will be invited regarding Michigan's request for ten days.

Smith Haughey Rice & Roegge will continue to monitor the progress of Michigan's request to adjust federally mandated MLR requirements.

Summer Associate Peter Afendoulis assisted in the writing of this entry.

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