Health insurers in Kansas and Oklahoma can’t take more than 20 percent of the revenue they collect in premiums for overhead and profit, after the U.S. today denied requests from the states for more generous limits.
The government now has rejected requests by eight states for waivers from a provision of the 2010 health-care overhaul that requires insurance companies to spend at least 80 percent of premium revenue on care, called a medical loss ratio. Seventeen states have asked for an adjustment to the requirement that would allow their insurers to spend less.
Kansas and Oklahoma don’t need an adjustment because insurers probably won’t leave the states without it, said the Center for Consumer Information and Insurance Oversight, an office of the U.S. Health and Human Services Department.
The spending requirement “is one of the most important consumer protections” in the health law, said Steve Larsen, director of the office, in a conference call with reporters. Kansas has a “stable, competitive” insurance market that won’t be disrupted by the requirement, and “there is not a reasonable likelihood” that any insurers will depart Oklahoma, he said.
Larsen’s assessment about Kansas is correct, said Sandy Praeger, the state’s Republican insurance commissioner, in a telephone interview. She submitted the waiver request in April, before it was clear whether insurers in her state could meet the requirement, she said.
“At the time we started our application we weren’t as certain as perhaps we are today that we won’t have difficulties,” she said. “That’s the good news; we think our market is relatively stable and our companies plan to stay with us.”
The top two insurers selling to individuals in Kansas are nonprofit Blue Cross Blue Shield plans, according to a letter Larsen sent to Praeger today explaining his decision. The largest for-profit insurer in Kansas is Coventry Health Care Inc., which expanded in the state last year when it bought a smaller competitor, Praeger said.
Praeger said she’s “not crazy about the hard-and-fast -- the rigidity” of the spending requirement.
“I certainly understand why it was done and I think that’s good: the reason behind it is to make sure companies are not charging high premiums just to enhance their bottom lines, but to make sure people are actually getting value for that premium dollar.”
Kansas had asked that its insurers be allowed to spend 70 percent of premiums on care in 2011, rising gradually to 76 percent by 2013. Oklahoma wanted a 65 percent loss ratio in 2011, increasing to 75 percent in 2013. All insurers will have to meet the 80 percent standard in 2014.
The largest insurer in Oklahoma’s individual market is Health Care Service Corp., a customer-owned company that runs the state’s Blue Cross Blue Shield plan, according to a letter Larsen sent to Oklahoma’s insurance commissioner, John Doak. The largest for-profit insurer in the state is Golden Rule, a UnitedHealth Group Inc. (UNH) subsidiary.
“This decision could lead to a massive disruption of our insurance markets,” Doak said in a statement. Smaller insurers in the state may comply with the requirement by firing employees, he said.
Doak, a Republican, opposed the health law and the creation of Larsen’s office, he said.
Insurers that don’t meet the standard must pay rebates to their customers beginning this year, under the health law. State insurance commissioners who have asked for waivers argue the rebate requirement will cause some insurers to exit the business, leaving people without coverage.
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