Obamacare’s Medical Loss Ratio—Discouraging Anti-Fraud Efforts

Health care fraud is a serious problem in the United States. 60 Minutes reports that $60 billion dollars of Medicare fraud alone is committed each year.1 While Obamacare requires spending an additional $350 million from public funds to combat health care fraud over the next ten years,2 it discourages private anti-fraud measures through its proposed Medical Loss Ratio (MLR) regulation.

The proposed MLR regulation was drafted by the National Association of Insurance Commissioners (NAIC). The regulation must be in place in time for insurance companies to make changes to their plans before the January 1, 2011 effective date set by the statute. The Department of Health and Human Services (HHS) is expected to certify the proposed regulation in the very near future.3

Under the MLR, insurance companies must use at least 80 to 85% of premiums on health benefits. This includes both incurred claims and “quality improvement” (QI) expenses. (See our “Nitty Gritty” article for a detailed explanation of how the MLR is calculated.)

Fraud prevention program costs are specifically excluded from the definition of QI expenses except for actual “amount[s] recovered that reduce[] incurred claims.”4

Unless there is an immediate impact on claims recovered as a result of anti-fraud spending by health insurers, it becomes part of the 15% that the MLR allots for overhead and profits. This forces insurance companies to choose between anti-fraud measures and profits and, thus, discourages private companies from taking initiative to fight fraud.

WellPoint,5 in its October 11, 2010 comment to the NAIC, argued that fraud prevention is about more than just cost controls—it is about patient safety and the quality of care as well.6

An organization key to efforts to fight health care fraud is the National Health Care Anti-Fraud Association (NHCAFA). The NHCAFA works to collaborate the efforts of private and public anti-fraud programs. Its membership includes 84 health insurance companies plus liaisons from state and federal law enforcement agencies that have a role in fighting health care fraud.7

The NHCAFA’s Executive Director Louis Saccoccio claims that, “[U]nder the medical loss ratio … private insurers will be discouraged from investing in critical anti-fraud programs. Ignoring the adverse impact fraud has on health care quality, the proposed definitions would classify the costs of fighting fraud as "administrative" rather than as costs that improve quality.”8 Says Saccoccio, “It makes no sense to discourage health plans from investing in anti-fraud efforts while the federal government is ramping up its anti-fraud spending in Medicare and Medicaid.”9

1 Medicare Fraud: A $60 Billion Crime—A.G. Holder Tells 60 Minutes More Oversight Is Needed; Scammer Explains How Easy It Is To Steal Millions, CBSNEWS.COM, Oct. 25, 2009, http://www.cbsnews.com/stories/2009/10/23/60minutes/main5414390.shtml.

2 U.S. Dept. of Health and Human Services, Department of Health and Human Services and Department of Justice team up to crack down on health care fraud, Nov. 5, 2010, http://www.hhs.gov/news/press/2010pres/11/20101105d.html.

3 Sarah Kliff and Jennifer Haberkorn, PhRMA drops $25M on election....McConnell to file amicus brief in Florida suit....MLR reg coming ‘very soon’...GOP E&C staffers bolt the Hill, POLITICO PULSE, Nov. 10, 2010, http://www.politico.com/politicopulse/1110/politicopulse373.html.

4 National Assoc. of Ins. Comm'rs, Regulation for Uniform Definitions and Standardized Methodologies for Calculation of the Medical Loss Ratio for Plan Years 2011, 2012 and 2013 Per Section 2718 (b) of the Public Health Service Act, Oct. 14, 2010, at 31, available at http://www.naic.org/documents/committees_b_mlr_reg_101014.pdf.

5 The largest publicly traded commercial health benefits company in the U.S. (in terms of membership).

6 Letter from Elizabeth P. Hall, Vice President, Public Policy, Wellpoint, to Comm’r Sandy Praeger, Chair, NAIC Health Insurance and Managed Care (B) Committee, (Oct. 11, 2010), at 13-15, available at http://www.naic.org/documents/committees_models_mlr_rebate_regulation_comments_2.pdf.

7 Our Members, www.NHCAA.org, http://www.nhcaa.org/eweb/DynamicPage.aspx?webcode=about_nhcaa&wpscode=OurMembers.

8 Louis Saccoccio, Executive Director of National Health Care Anti-Fraud Association, Medical Loss Ratio Rule Should Encourage Health Care Fraud Fighting, KAISER HEALTH NEWS, Oct. 4, 2010, http://www.kaiserhealthnews.org/Columns/2010/October/100410saccoccio.aspx.

9 Id.