Maine Wins First Waiver to Health Insurance Premium Rules

The state of Maine received a three- year waiver to federal rules in the 2010 health law that require health insurers to spend at least 80 percent of premiums on patient care, the U.S. government said today.

Maine’s waiver is the first the government has granted on the premium expenditure rules. Insurers in the state selling policies to individuals will have to spend only 65 percent of premiums on patients, with the rest going toward profits and administrative costs. The exemption will last through 2013, U.S. regulators said today in a letter to the state.

The spending requirement “has a reasonable likelihood of destabilizing the Maine individual health insurance market,” wrote Steve Larsen, deputy administrator of the Center for Consumer Information and Insurance Oversight. The office is part of the Department of Health and Human Services, which is implementing the law signed by President Barack Obama in March 2010.

The law requires insurers in the individual market to spend 80 percent of premiums they take in on patient care. Large group insurers have to spend 85 percent of premiums on care. The health overhaul also created a process for states to get out of those requirements if they show the rules would destabilize their markets and possibly cause people to lose their coverage.

Kentucky, Nevada and New Hampshire have also applied for changes to the 80 percent rule. The federal government is reviewing those applications.

The U.S. previously has waived rules that would have created minimum annual coverage levels for some health plans.

Insurers May Leave

Maine Insurance Commissioner Mila Kofman requested the exemption from the 80 percent rule after HealthMarkets Inc., based in North Richland Hills, Texas, threatened to stop selling individual policies in Maine. The company is 77 percent-owned by funds run by Blackstone Group LP (BX) and Goldman Sachs Group Inc. (GS) Its subsidiary, MegaLife and Health Insurance Co., controls about 37 percent of the Maine market for individual insurance coverage, according to Larsen’s letter.

The city of Los Angeles sued HealthMarkets and its MegaLife unit on Oct. 20 for allegedly selling “junk insurance” with obscure provisions that left customers “without coverage when they needed it most,” according to court documents.

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net

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