AHLAlerts: American Health Line’s Blog

The Democratic leaders of six influential House and Senate committees on Tuesday sent a letter to HHS seeking to clarify how federal taxes and fees paid by health insurers count under medical-loss ratio rules in the federal health reform law, Politico‘s “Pulse” reports (Haberkorn/Kliff, “Pulse,” Politico, 8/12).

Under the overhaul, large health plans beginning on Jan. 1, 2011, will be required to spend at least 85% of premiums on medical services and quality improvement, rather than administrative costs or profits. The MLR for individual and small-group health plans must be at least 80% (American Health Line, 7/26). The reform law states that “federal and state taxes and licensing fees” should be excluded from the premium revenue number, which essentially means they would be counted as medical costs, “Pulse” reports.

A special working group of members from the National Association of Insurance Commissioners — which is developing draft language of the MLR rules and reporting requirements — this month reached a preliminary agreement allowing federal income taxes on items other than investment income or capital gains to be considered as medical expenses. The group is expected to finalize its MLR recommendations to HHS during NAIC’s annual summer meeting in Seattle this week.

However, the Democrats are concerned that the language of the preliminary agreement is too lenient on insurers, according to “Pulse.” In the letter, the lawmakers state that their objective when drafting the overhaul bill was that only federal taxes and fees relating specifically to revenue generated from the health insurance coverage provision in the reform law should be counted as medical costs. The letter clarified that those taxes include the annual fee on market share, the annual fee on each health policy, and the tax on high-cost employer plans. The lawmakers noted that other taxes, such as income or payroll taxes, would not be considered medical costs.

The letter, which also was sent to NAIC President Jane Cline, was co-signed by Senate Finance Committee Chair Max Baucus (D-Mont.), Senate Banking Committee Chair Christopher Dodd (D-Conn.), Senate Health, Education, Labor and Pensions Committee Chair Tom Harkin (D-Iowa), House Ways and Means Committee Chair Sander Levin (D-Mich.), House Education and Labor Committee Chair George Miller (D-Calif.) and House Energy and Commerce Committee Chair Henry Waxman (D-Calif.).

Insurers Protest Lawmakers’ Clarification

Mike Tuffin, executive vice president of America’s Health Insurance Plans, characterized the Democrats’ actions a “last-minute rewrite of the law” that “would raise costs and destabilize … coverage.” Insurers said that if lawmakers had intended to restrict the types of taxes that count as medical costs when drafting the health reform bill, they would not have included “and state taxes” in the wording, because the reform law does not create any new state taxes.

Insurers Challenge Likely; HHS in Difficult Position

According to “Pulse,” a legal expert on insurance issues suggested that insurers could submit legal opinions challenging the Democrats’ clarifications of the federal law in the next few days. The letter also could serve as an important issue in future legal action over the MLR regulations. “Pulse” reports that the letter also likely would put HHS in a difficult position, as the agency would have to review and approve NAIC’s MLR recommendations for implementation. A draft document outlining itemized spending that insurers likely would have to report to HHS was released at the NAIC’s Seattle meeting, and the executive committee is expected to vote on the document on Tuesday (“Pulse,” Politico, 8/12).

– Santosh Rao

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