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Last updated on April 23, 2014 at 20:01 EDT

Health Insurers Prepare For New Laws

April 16, 2010

According to a report released on Thursday by a U.S. Senate panel, some of the largest U.S. health insurers are changing their accounting practices to book administrative costs as medical costs to try to circumvent new industry reforms.

The new healthcare law that passed in March requires insurers to adjust their spending habits to meet new requirements.  Large group plans must spend at least 85 cents of every premium dollar paid to them on actual medical care instead of administrative costs, while individual and small group plans must spend 80 cents.

Wall Street pays close attention to these spending levels, known as medical-loss ratios or MRLs, to determine the potential profits.  Major health insurance stock indexes fell after the report was released.

“The insurance industry is beginning to consider the financial impact of the new federally required (medical) loss ratio requirements, including questionable changes in their accounting practices,” the Democratic-led Senate Committee on Commerce, Science and Transportation said in a statement.

It said, for example, WellPoint Inc “has already ‘reclassified’ more than half a billion dollars of administrative expenses as medical expenses.”

Kristin Binns, WellPoint’s spokeswoman, told Reuters in an interview that the company plans to work with regulators to implement the MLR requirement, however she did not say whether it had shifted any costs or changed its accounting practices.

According to the report, a review of companies’ expenses for 2009 shows that in some markets, insurers are spending 74 cents per dollar on care on average. 

Cigna spokesman Chris Curran told Reuters it was too early to determine how the new MRL rules would affect the insurer.  He added that methods of calculating costs were still being developed. 

Senator John Rockefeller, the committee’s chairman, said that although the MLR rules do not kick in until January 1, insurers are “still far below” what the law will require.

“This new data makes clear that too many health insurance companies are still putting profits before people,” Rockefeller told Reuters, “and they have a lot of work to do to meet the consumer protection requirements of the health care reform law by the end of this year.”

The Department of Health and Human Services’ regulators are pushing to apply the MLR changes quickly.  This department is charged with implementing much of the new health reform law.

The agency called on the National Association of Insurance Commissioners earlier this week to give its recommendations for specific MRL ratio regulations by June 1, which is six months before the December 31 deadline.

“(The agency) is seeking to publish regulations as soon as possible to allow sufficient time for health insurance issuers to incorporate these changes,” U.S. Health Secretary Kathleen Sebelius wrote in a letter the group.

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