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Working Together to Create Sustainable Reform

New regulations were released by the Department of Health and Human Services (HHS) on November 22, 2010 regarding the implementation of provisions in the Patient Protection and Affordable Care Act of 2010 that require health insurance providers to spend 80-85% of premiums to pay for health care claims. These rules were established to ensure greater transparency and accountability for consumers regarding how their premiums are spent. They also ensure that consumers get their money’s worth in services and receive rebates of premium if insurers do not keep administrative costs at 20% of premium collected or less.

These regulations are a fine example of cooperation between state and federal governments and the private insurance industry. For the most part, insurance is a business regulated at the state level. Each state has a Department of Insurance that regulates the licensing of agents and brokers, granting permission to insurance companies to sell their products within state borders and approving the products and premiums that companies will charge for them. These state agencies also oversee the way insurance is transacted within their borders and work to prevent and prosecute fraudulent activities.

In 1871, the National Association of Insurance Commissioners (NAIC) was established with the goal of coordinating regulation of multi-state insurance companies. This body has been responsible for development of much of the regulation and structure of the insurance industry as we know it today. NAIC includes representatives from the departments of insurance in all 50 states, the District of Columbia and 5 territories in its membership. It is responsible for the development of uniform policy in terms of the regulation and management of insurance products and practices of insurance companies. These regulations support the state regulators in their task of protecting consumers.

NAIC works with the companies that offer insurance products to ensure that their products will meet financial reporting and market standards requirements set to protect consumers. With the passage of the new law reforming the financing of health care, the Patient Protection and Affordable Care Act, NAIC and HHS began working together, in consultation with insurers, to develop the regulations that have just been published. The new regulations define the concept of Medical Loss Ratio (MLR) and how it is to be established. They also (1) establish insurer reporting requirements, (2) define the concept of “quality improving activities” and how they are to be evaluated, (3) set dates for reporting and if necessary paying rebates to customers when MLR requirements are not met by insurers, (4) set up accommodations necessary to modify the regulations in specific instances where consumer access to affordable policies might otherwise be diminished or market dynamics disrupted and (5) establish the mechanisms for enforcement of the new regulations.

All of these new regulations were approved by the insurance commissioners of the states and territories through NAIC before being submitted to HHS. They were developed in cooperation with the insurance industry. Steps were taken to protect the businesses of agents and brokers who work with the public, assuring continued consumer access to trusted advisers. Only after all parties had reached agreement on them, did the Department of Health and Human Services publish them. These are truly an example of ways the federal and state governments, as well as private industry, can work together to create sustainable reform.

Nancy-Ann DeParle, Director of the Office of Health Reform at the White House has recorded a short video explaining the new rule and what it means for consumers. You can see it here.

Another good source for authoritative information on health care financing reform issues is


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