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Interactive: Dems Fight Insurance Department Effort to Delay Reform

Texas Democrats say the state Department of Insurance's request for a delay in implementing federal health reform rules could cost Texans $260 million in premium credits and rebates over the next three years.

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Texas Democrats and some public policy groups are pushing back against the Texas Department of Insurance for requesting a delay in the implementation of insurance changes required by federal health care reform. They say such a delay will cost Texans $260 million in rebates that insurance providers would be forced to pay out over the next three years.

Beginning this year, provisions in the federal Affordable Care Act require health insurance providers to direct 80 to 85 percent of insurance premiums to medical care and activities that improve health care quality. The new rule is intended to limit the amount insurance carriers spend on administration and marketing, and to pressure insurance providers into curbing rising premium costs. At the end of 2011, if insurance providers have not met the requirement, they must give rebates or premium credits to customers.

In July, the Texas Department of Insurance sent a request to the U.S. Department of Health and Human Services to phase in the new provisions for individual insurance carriers over the course of three years. The TDI proposed requiring individual health insurers to spend 71 percent on medical care and quality improvement in 2011, and incrementally increase this so-called "medical loss ratio" by 3 percent each year until 2014. At that point, insurers would be required to meet the 80/20 medical loss ratio requirement established by health reform. 


"It is not in the best interest of Texas consumers to delay or adjust full implementation of the rule requiring these health insurance premium rebates,” state Rep. Ruth McClendon, D-San Antonio, said in a press release. She was among 15 state lawmakers who signed a letter sent to the U.S. Department of Health and Human Services opposing Texas' requested delay.

Currently more than 700,000 Texans rely on the individual insurance market for health care coverage. According to the request TDI sent to HHS to adjust the requirement, the average medical loss ratio for an individual insurer in Texas was 70/30 in 2010. If the new federal medical loss ratio requirement had been in place in 2010, those insurance carriers would have been required to refund $158.1 million to customers — “virtually eliminating the total net underwriting profits of $158.6 million.”

In his July letter to HHS, then-TDI Commissioner Mike Geeslin stated that the federal medical loss ratio requirements are “likely to stifle competition in the market and constrain many Texans’ access to coverage.”

That’s of “critical importance,” he said, because of the high rate of uninsured Texans. According to 2009 data from the U.S. Census Bureau, Texas has the greatest percentage of people without health insurance in the country. 

Those opposed to Texas' request to phase in the requirements say it is unnecessary, and will diminish the state's ability to hold down high premium costs.   

"The fact that several insurers in this market already meet the new [medical loss ratio] requirement demonstrates that the standard is clearly achievable," Rep. Lon Burnam, D-Fort Worth, said in a press release. 


Currently, 12 of 35 individual insurance providers in Texas meet the 80/20 medical loss ratio, according to information provided by the state insurance department to HHS as part of the request. The New York Life Insurance Co., for example, has a medical loss ratio of 97/3. In comparison, Citizens National Life Insurance Company has a medical loss ratio of 50/50, which means only half of premiums are spent on medical care and quality improvement.

TDI estimates that Texans would receive $160 million in rebates or premium credit from individual insurance carriers in Texas in 2011 if providers are required to direct 80 percent of premiums to medical care and quality improvements. But if the adjustment is approved, and individual insurance carrier are only required to meet a 71/29 medical loss ratio in 2011, Texans would only receive $35.6 million in rebates.

Stacey Pogue of the left-leaning Center of Public Policy Priorities, which also sent a comment to HHS on the implementation of the medical loss ratio provisions, said there is already proof from insurance companies that the new federal standards decrease health insurance premiums over time. According to a report from the U.S. Government Accountability Office, insurers reported they are already reducing brokers’ commissions and adjusting premiums to compensate for the new requirements.

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Health care Department of State Health Services Federal health reform