The Minimum Loss Ratio (MLR) mandate contained within the Patient Protection and Affordable Care Act of 2010 (PPACA) has created a myriad of compliance requirements for health plans. The most complex and potentially costly of these will be issuing rebates to members when a plan’s MLR falls below the minimum threshold.

Many carriers do not have the infrastructure in place to accommodate the rebate mandate. Exacerbating an already significant challenge is the very real possibility that pending legislation and ongoing legal skirmishes will modify the way in which the PPACA—and the MLR mandate—is implemented and enforced. As such, initial and ongoing compliance will require a comprehensive retooling of critical business processes and deployment of enhanced and highly agile systems and solutions.

Market Impact

Under the PPACA, beginning in 2011 the MLR standard is 85 percent for large group carriers and 80 percent for small group and individual carriers. Failure to meet these minimum thresholds triggers the requirement that carriers issue rebates to subscribers. Those rebates must be paid directly to consumers who purchase individual policies or through employers for those who are in group or employer-sponsored plans.

The anticipated impact of the rebate requirement on the carrier market is significant. The U.S. Department of Health and Human Services (HHS) estimates that 45% of consumers who have purchased individual coverage are in plans that do not meet the MLR mandate. Were the mandate in effect today, an estimated 9 million people would be eligible for rebates averaging $164 per person. In 2012 alone, rebates are expected to cost the industry $1.4 billion.

There are some exemptions to the MLR mandate. For example, carriers that offer "mini-med" or "expatriate" plans are able to calculate their MLR differently than traditional plans, at least for 2011. As such, these plans are able to meet the 80% threshold by spending as little as 40% on direct medical costs.

Waivers are also available to states that can demonstrate meeting the MLR would destabilize their individual insurance market.

Under the PPACA, beginning in 2011 the MLR standard is 85% for large group carriers and 80% for small group and individual carriers.

Many carriers whose plans are not exempt from the MLR are finding that they are ill-equipped to manage the rebate process, as their systems and processes lack the flexibility necessary to adapt to the complex rebate regimen. They are also finding it necessary to implement higher value-add initiatives to off-set the increased costs of complying with multiple PPACA provisions, such as guaranteed issue and elimination of lifetime limits.

In calculating its MLR, a carrier must aggregate data by state and market over a three-year period. Earned premium adjustments must be made for:

• Assessments paid to, or subsidies received from, federal and state high risk pools

• Premiums associated with group conversion charges

• Experience rating refunds

• Unearned premiums

Incurred claims must be adjusted for such things as:

• Group conversion charges

• Unpaid claims between the prior and current years’ unpaid claims reserves

• Change in claims incurred by not reported (IBNR)

• Other changes in reserves

• Any experience rating refunds

Under the MLR formula, plan activities that improve healthcare quality can be counted with incurred claims. These activities include case management, care coordination, chronic disease management, accreditation fees directly related to quality of care activities, and quality reporting, as well as IT to support these activities. Other acceptable quality initiatives include those designed to prevent hospital readmissions, improve patient safety, reduce medical errors and promote wellness and health activities.

Activities which are explicitly not considered activities that improve quality include fraud prevention, retrospective and concurrent utlilization review, as well as the costs of maintaining provider networks and provider credentialing.

Thus, the actual formula for calculating the MLR is:

Incurred Claims + Activities to Improve Quality divided by

Premium Revenue – Taxes & Fees

When it comes to rebates, calculations are no less complex:

Premium paid by enrollee – Taxes & Fees multiplied by

MLR Standard – Actual MLR

The challenge is not just determining the amount of the actual rebate. It is tracking the customer data required in the event a rebate must be issued and ensuring that payments are issued within the mandated timeframe (no later than August 1 following the end of the MLR reporting period).

Strategic Objectives

For health plans, successful compliance requires adapting existing work processes and infrastructures in a way that enables the efficient processing of rebates. It must be done in a manner that does not interfere too significantly with current business operations, and that allows carriers to take advantage of new opportunities available in a post-PPACA environment.

Carriers must focus on executing strategies that ensure they have the processes in place to streamline the rebate process and convert it from a cost center to a marketing opportunity. These should focus on:

• Understanding the rules and evolving responsibilities governing MLR calculations and rebates and continuously monitoring for changes

• Converting a fixed infrastructure investment into a predictable variable cost structure

• Deploying integration pathways to ensure necessary data feeds and workflows

• Deploying processes for interacting with members and employers to secure key data elements

• Designing programs to leverage the rebate requirements as a means for up-selling to existing subscribers and re-engaging terminated ones

Finally, any adaptations carriers make must be flexible enough to accommodate any future changes that may apply in the wake of legislative and legal challenges.

HealthPlan Services

HealthPlan Services (HPS) recognizes the challenges that carriers face in complying with the PPACA while replacing lost profits and capitalizing on emerging opportunities to strengthen revenues and market share. Partnering with HPS enables carriers to leverage the up-to-the-minute monitoring capabilities and understanding of both MLR policy changes and operational best practices provided by a trusted industry resource.

HPS understands the many nuances of healthcare reform, and has leveraged that knowledge to create a suite of flexible rebate solutions that meet the unique needs of carriers confronted with the MLR rebate. Its full service offering is ideal for clients to whom HPS is already providing administrative services, while its stand-alone module offers a solution for carriers seeking only rebate processing support. Both feature multiple entry and exit points, including rebate refund and disbursement feeds.

HPS’ rebate solutions are all about flexibility and compliance, offering multiple disbursement methods—paper check, ACH credit, credit card credit, pre-loaded debit card, credit on billing invoice—and electronic and paper statement options. HPS also provides a mechanism for gathering contribution rates for group plans, escheatment processing

HPS understands the many nuances of healthcare reform, and has leveraged that knowledge to create a suite of flexible rebate solutions…