08/27/2010 03:32 pm ET Updated May 25, 2011

Medical Loss Ratio and Public Health: Questions Linger

Last week the National Association of Insurance Commissioners issued proposed rules for measuring the Medical Loss Ratio (MLR), a key instrument for controlling health insurance premiums. The MLR is the 80-85% of premiums that the new health care reform law requires insurance companies to spend on medical care, or improvements to the quality of care, as opposed to administration. Companies that fail to meet that test must give subscribers a rebate. The usually out-gunned consumer representatives at the NAIC supported the state insurance commissioners' vote to adopt the proposed rules unanimously, claiming a victory against insurance industry lobbyists.

But a key provision that slipped through threatens both the effectiveness of the MLR, and the integrity of public health departments. The U.S. Department of Health and Human Services (HHS) is backing a late amendment that would allow insurance companies to count their collaborations with public health departments as quality improvements.

What this means: Partnerships between private, for-profit health insurance companies and cash-strapped public health departments would be counted as part of the expenditures of your premium dollars to improve your health.

The key question is this: Should insurance companies be able to get off the hook for paying rebates to customers, who may believe their company is unfairly denying them specific medical care in order to save money, by virtue of engaging in health promotion campaigns?

Even assuming you like the idea of entrusting health promotion campaigns to your health insurance company, is the MLR a remotely suitable mechanism for encouraging them to engage in these campaigns?

This is a classic mismatch of policy priorities. The MLR is meant to compel your insurance company to direct your premiums to pay for your health care. If your premium dollars are going to programs that benefit any non-subscriber. it shouldn't count against your right to a rebate. On the other hand, public health departments are meant to use your tax dollars to improve the health of your community. There are simply no grounds to divert public health department efforts to serve subscribers to a particular health plan.

There aren't a lot of these partnerships now -- at least not legitimate ones. Most often they take the form of marketing campaigns that happen to focus on public health issues such as smoking cessation. If this rule stands, we can likely look forward to increasing insurance industry incursions into public health territory. So what? At least 3 things: 1. Premium dollars will be further frittered away on marketing campaigns re-dubbed as "health awareness." 2. Real public health department initiatives, and funding for same, will be undermined as already scarce public health staff are diverted to determining whether particular insurance company campaigns are legitimate or not. 3. Smoking cessation campaigns, for example, can help insurance companies identify and then cherry-pick customers, either excluding smokers from coverage, or charging them more (the excess charges remain legal even after new rules take effect in 2014).

Interestingly, the insurance industry is also lobbying not to count investment income, or the taxes they pay on investment income, as, well, income, for purposes of calculating the MLR. Those are the taxes that they should be paying to support our state and local health departments.

HHS has to "certify" the NAIC's recommendations before they take effect. The EQUAL Health Network says this one should get a recall.

Background can be found here.