Track outcome-improvement efforts to satisfy new MLR rules

NATIONAL REPORTS-The certification of rules regarding medical-loss ratios brings some clarity to an issue that has tried the patience of health plans, but now the hard work begins, analysts say.

"The legislation does result in greater transparency into company operations," says Nancy L. Litwinski, director, National Healthcare for Deloitte & Touche LLP. "It's an opportunity to regain public trust and confidence that's often misplaced."

Although the rules have been certified by the U.S. Department of Health and Human Services, the fallout remains unclear, including how insurers will account for spending at least 85% of premiums on health services for groups of 100 or more and 80% for smaller groups and individuals.

Historically, insurance companies have profited more from the small group market, but increased scrutiny of MLR likely will mean reduced net incomes in that segment.

Insurers face challenges on both sides of the MLR equation, justifying medical claims expenses through quality initiatives while holding down costs on the administrative side. Broker or agent commissions are specifically classified as nonclaim costs, for example. Even smaller insurers will have to re-examine overhead costs, distribution and marketing expenses to maintain profits under the new guidelines.

"Companies will need to look at these items and try and become more efficient in the delivery of those services," Litwinski says. "Retaining as much of that 20% as possible to remain profitable will come through efficiency."