The Centers for Medicare & Medicaid Services (CMS) has issued new guidance (pdf) on the medical loss ratio (MLR) requirement under the Affordable Care Act. The new health care law mandates that health insurers, depending on the size of the insurance market, spend between 80 and 85% of premium revenue on reimbursement for clinical services or activities that improve health care quality, or provide a rebate to their enrollees. The law also imposes certain reporting requirements for insurers. Final regulations implementing the MLR requirement, including its application to mini-med plans and distribution of rebates to enrollees in group health plans, were issued in December 2011.

The new technical guidance, which is in question and answer format, responds to inquiries on the following topics: applicability of the MLR to certain types of plans; employer groups of one; counting employees for determining market size; individual association policies; offering policyholders a “premium holiday”; reinsurance and reporting; insurance exchange user fees; states with a higher medical loss ratio standard; application of the adjustment to “mini-med” plans; and the form of the rebate to be provided.

With respect to the application of the MLR to certain types of plans, the Q&A document clarifies that the MLR reporting and rebate requirements are applicable for health insurance issuers offering group or individual health insurance coverage only. These requirements are not applicable to self-funded plans, health insurance benefits provided through a Medicaid managed care organization (MCO) contract with a State Medicaid agency to provide benefits to Medicaid beneficiaries, nor for health insurance benefits provided through a contract with CMS that offers health insurance coverage through Medicare, such as Medicare Advantage plans (Medicare Part C) and Medicare prescription drug plans (Medicare Part D).

As for employer groups of one, the guidance explains that “where a sole proprietor and/or a spouse-employee are the only enrolled employees, the health plan would not be considered to be a group health plan.” The guidance explains further, however, that if “a sole proprietor enrolls a non-spouse employee, the experience of that plan is part of the small group market for MLR purposes. Even if the only enrollee is an employee who is not an owner or spouse, the plan is part of the small group market for MLR purposes.”

Another question asks what method should be used in counting employees to be covered under a group policy that does not cover all employees. In response, the guidance states that “at the time of sale, issuers should make every attempt to accurately count the number of employees employed by the group policyholder so as to accurately categorize the group as belonging in the small or large group market.” In certain circumstances, however – such as when a policyholder does not make the policy available in all states in which it does business – it is more difficult to ascertain market size. In such a situation, the guidance explains, “the issuer may determine the group size for MLR reporting purposes and the minimum MLR standard based on the information available to the issuer.”

In terms of reporting MLR data for individual or non-group association policies, the Q&A explains that issuers should report such data “in the state where the individual resides at the time the certificate of coverage is issued.”

In response to another question about whether “premium holidays” are permissible in lieu of providing rebates if an issuer finds that its MLR is lower than the standard required, the guidance explains that this is a state regulatory issue not addressed by the MLR regulations.

The guidance also notes that insurance exchange user fees “should be included in the licensing and regulatory fees that are subtracted from premium in the MLR calculations.”

Finally, the Q&A guidance lists the conditions that must be met before an issuer may provide MLR rebates in the form of a pre-paid debit card.

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