Oklahoma Commissioner Disappointed in Denial of MLR Waiver Request

Oklahoma’s top insurance regulator believes the medical insurance market is headed for “disruption” as a result of the medical loss ratio component of federal health insurance reform

After Oklahoma’s request for a waiver of the MLR requirement was denied by the U.S. Department of Health and Human Services and Insurance Commissioner John D. Doak expressed grave disappointment in an announcement released by the Oklahoma Insurance Department.

“This decision could lead to a massive disruption of our insurance markets in Oklahoma,” Doak said in response.

The Medical Loss Ratio (MLR) determines the percentage of premium dollars that an insurer may spend on actual health care, versus the amount spent on administration and profits. The Patient Protection and Affordable Care Act (PPACA) has set an 80 percent minimum MLR for companies doing business in the individual and small-group health insurance markets; an 85 percent MLR for large-group plans.

Doak and the OID in September sought a gradual phase-in of the 80 percent ratio in the individual market only, rather than immediate and strict enforcement of those targets by the U.S. Department of Health and Human Services (HHS). No changes were requested by Oklahoma for the small-group and large-group markets.

Noting the disproportionate and potentially damaging effect of the high MLR on certain smaller companies and the possible impact in particular on Oklahoma’s rural communities, Doak and the OID requested that insurers be required to meet a 65 percent MLR for 2011, 70 percent in 2012 and 75 percent in 2013, with full compliance with the 80-percent standard for individual policies by the time the bulk of PPACA’s provisions are fully in force in 2014.

“We asked for a decision that would first and foremost do no harm to the current markets,” said Mike Rhoads, deputy commissioner of Life and Health Insurance at OID. “We wanted to keep coverage available, to keep all carriers large and small in our individual market.”

While it may be easier for large carriers to meet MLR requirements, Doak and others believe that smaller companies will have a harder time meeting the ratio requirement.

Doak believes certain smaller companies might be forced to comply with PPACA’s MLR provisions by reductions in force that destroy Oklahoma jobs, meanwhile limiting consumers’ access to the counsel of licensed agents and decreasing the availability of customer service to policyholders. Some small companies might decide to leave the Oklahoma market altogether, the department said. That would reduce consumer choice and allow one or two major carriers to command larger shares of the healthcare market.

“Competition fosters innovation in the type of insurance products available, competitive pricing that reduces policyholder premiums, and attention to detail in customer service as a means of retaining business,” Doak said. “Simply put, competition is good for consumers and these MLR requirements could very well reduce competition in Oklahoma’s insurance markets.”

Doak has been critical of the PPACA in the past. In an interview with Insurance Journal in December 2011, Doak said it was “one of the worst pieces of legislation” he’s seen passed and would have “unintended consequences,” including a negative effect on agents and brokers.

Doak, a member of the National Association of Insurance Commissioners committee on health and managed care, said he’s been outspoken against the use of the term “navigators” in the legislation, which refers to those who help consumers with their health insurance choices. He believes the term jeopardizes the “very critical” role of agents and brokers.

“I believe that consumer protection is handled best by a licensed insurance agent and broker, and this piece of legislation is basically to take them out of the equation” Doak told Insurance Journal.

Agents, Doak said, are “the front line of consumer protection. I’m very proud of that group, and I believe that they should be compensated for that role.”

In the statement released by the insurance department, Doak said the MLR isn’t a reliable means of determining an insurance company’s effectiveness to consumers. Some Oklahoma companies that will struggle to meet the MLR requirements are nonetheless price-competitive with other companies that do or will meet the MLR threshold. Small carriers also frequently serve rural markets in which larger carriers have less or no interest in doing business, providing conscientious, personalized customer service to Oklahoma policyholders.

“MLR is an arbitrary and superficial means of judging the worth of an insurance company to its policyholders,” Doak said. “Just because one company is able to attribute a smaller percentage of its operating costs to each policyholder does not necessarily mean its policyholders received a greater value for their dollar.”

Oklahoma’s request is similar to waivers sought by numerous other states. States that have received approval include Maine, Georgia, New Hampshire, Iowa, Kentucky and Nevada.

Waiver requests by Indiana and Louisiana have also been denied. Louisiana Insurance Commissioner Jim Donelon has called upon HHS to reconsider that state’s waiver request.

The U.S. Government Accountability Office in late 2011 reported that 64 percent of health insurance carriers in the United States are already meeting the MLR requirements.

Topics Carriers USA Agencies Legislation Oklahoma