Where Does Health IT Fit Into the Medical Loss Ratio?

by Kate Ackerman, iHealthBeat Senior Editor


A provision in the new health reform law requires health insurers to spend a minimum percentage of premium dollars on direct health care services or activities that improve health care quality. The medical loss ratio provision, which goes into effect Jan. 1, 2011, aims to ensure that consumers' premium dollars go toward medical care, rather than administrative expenses, advertising, executive pay or insurers' profits.

But in which category does health IT fall?

Background on MLR Provision

Under the reform law, insurers in the individual or small group market must have a minimum MLR of 80%, while insurers in the large group market must have a minimum MLR of 85%. Health plans that do not meet the required MLRs must provide annual rebates to their members.

The reform law does not offer details on what activities should count toward clinical care and what activities should be considered administrative expenses. Instead, the law directs the National Association of Insurance Commissioners to develop uniform definitions and methodologies for calculating MLR. NAIC's definitions and methodology are subject to certification by HHS Secretary Kathleen Sebelius.

A lot is riding on the definition of MLR, so it's no surprise that dozens of health plans, consumer groups and provider organizations offered comments by the May 14 deadline in an effort to influence federal regulators' interpretation of the provision.

In an April 15 report, the Senate Committee on Commerce, Science and Transportation warned, "Boosting medical loss ratios through creative accounting will not fulfill the new law's goal of helping consumers realize the full value of their health insurance payments."

Impact on Health IT?

Health IT is one of several areas in which it is unclear whether investments should count toward a health plan's MLR or toward its administrative costs.

Robert Zirkelbach, America's Health Insurance Plans' press secretary, said, "There's a lot of evidence that certain investments in health information technology are essential to improving the quality and safety of patient care." He added, "Health plans have pioneered programs such as personal health records and other types of programs to reduce medical errors and reduce complications."

Zirkelbach said that "those types of investments are essential to moving our health care system to a 21st century, evidence-based health care system," adding, "So as policymakers are developing the new MLR regulations, it's important that they don't discourage investment in these types of initiatives."

In a comment letter, Aetna urged NAIC to consider as part of the MLR "health information technology investments that directly and indirectly support quality be considered, like [electronic health records] and ICD-10 implementation, as they will enable better research and disease management."

In its comment letter, Assurant Health urged the federal government to include health IT tools, such as PHRs, as activities that improve health care quality in its MLR calculation. The health plan said that PHRs allow its members "to be more knowledgeable about his/her own health history, which will produce better health care choices. In addition, a single, complete health record makes it easier and more efficient for providers to evaluate patients, also resulting in better care."

Lynn Quincy -- a senior health policy analyst at Consumers Union -- said, "We feel there is some IT that genuinely advances of quality of care ... but there's a lot that doesn't."

According to Quincy, IT expenditures that go toward operations, payments and underwriting functions and those that have no direct link to quality of care should not count toward a health plan's MLR.

Quincy said, "What we recommended is that the burden of proof be on insurers." She added that Consumers Union believes that the burden of proof should be "a high bar" and that there should be "rigorous oversight" by HHS.

Steven Findlay -- also a senior health policy analyst at Consumers Union -- said that the key is to tie what health IT elements meet the MLR bar to "meaningful use" criteria. For example, health plans should be able to include initiatives toward the MLR that help physicians report quality measures via EHRs, he said.


NAIC is expected to provide recommendations to HHS by June 1 on how to define the MLR provision in the new reform law.

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