Truthfully, I was amazed that minimum medical cost ratio (MCR) requirements ever made it into the healthcare reform law. Now that it’s in there, the definition of what does (and doesn’t) constitute a medical cost just keeps getting worse for managed care.
The big blow came earlier this month when six key Congressional Democrats including Sen. Max Baucus (D-MT) told HHS Secretary Sebelius that federal income and payroll taxes shouldn’t be excluded from premiums in calculating MCRs; instead, they say, the only exclusion should be for taxes related specifically to revenue derived from the provision of health insurance.
My friend Carl McDonald over at Citi revamped his analysis to reflect the impact of this interpretation: “Our estimate is that federal income taxes account for between 150-200 basis points of the anticipated increase in reported MLRs. In other words, instead of raising reported MLRs by 500 basis points, it is now possible that the adjusted MLRs will increase by only 300-350 basis points, increasing the rebates that plans are required to return to customers next year.”
Bottom line: even lower profits for health plans in 2011 than originally anticipated.
Of course, neither Sebelius nor the National Assn. of Insurance Commissions – which is drafting the MCR rules – is required to follow the Democrats’ interpretation of the legislation; the law simply reads that the denominator for calculating MCRs should be “the total amount of premium revenue (excluding Federal and State taxes and licensing or regulator fees).”
Naturally, insurers are lobbying hard for the broader interpretation. Extended coverage appears in the Aug. 23 issue of Carl Mercurio’s Health Plan Market Trends Letter.
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