The federal government on Wednesday rejected a request by Kansas to reduce the amount of premiums that insurance companies must devote to health care.
The decision means that as of 2011, providers of individual and small-group health insurance in Kansas must spend at least 80 cents of each premium dollar on health care and activities that improve health care or else pay rebates to their members. The Department of Health and Human Services estimates that four such companies – Coventry, Humana, Time and Golden Rule – may have to provide rebates this year.
The requirement, also known as the 80/20 rule, is part of the federal Affordable Care Act. The federal government is allowing states that think the rule would destabilize their individual insurance market to request a lessening of the requirement, and Kansas felt compelled to do so in case the rule would prove harmful, state Insurance Commissioner Sandy Praeger said. But the Department of Health and Human Services said Wednesday that Kansas’ market is stable and competitive and will not be disrupted by adhering to the requirement. The department also said it did not see evidence that any insurance company would leave the state because of the rule.
“Whenever you’re implementing new policies that can potentially have a negative impact, you don’t want to leave any stone unturned,” Praeger said of Kansas’ request for adjustments to the rule. But she agreed that insurance companies did not provide evidence to prove that the rule would be harmful, and she doesn’t expect the state to appeal Wednesday’s decision.
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HHS on Wednesday also turned down Oklahoma’s request for an adjustment.
Steven Larsen, director of the Center for Consumer Information and Insurance Oversight in HHS, said in a conference call that any Kansas insurance company that did not meet the 80/20 rule in 2011 will owe its members rebates this August. He said that based on 2010 numbers, the companies doing business in the state would owe as much as $6 million to about 35,000 people. But he said that insurance companies have been working toward complying with the rule, so the amount of rebates for 2011, the year when the rule actually went into effect, may not be that high.
Four of eight insurance issuers fell below the 80 percent standard in 2010, HHS said: Coventry (72.6 percent), Humana (70.8 percent), Time (68 percent) and Golden Rule (62 percent). The companies all are profitable and can afford to pay rebates, Larsen said. The companies at or above 80 percent were Blue Cross Blue Shield of Kansas (88.8 percent) and of Kansas City (79.4 percent), Aetna (85.1 percent) and Reserve (109.5 percent; adjusted for its small size).
Twenty percent of premium dollars may be spent on administrative costs such as marketing, advertising and agents’ commissions.
Praeger said that some companies will be able to make a case that some of their administrative costs improve health care and therefore can fall into the 80 percent rather than the 20 percent category.
One argument against the 80/20 rule is that commissions of independent agents will be cut. Larsen said that might be one way companies meet the requirement, but he said HHS did not have any evidence that this was going to hurt people’s access to insurance. “We value the role agents play,” he said.
For companies that provide insurance to groups of 50 or more, the rule is that at least 85 percent of premium dollars go for health care.
Larsen said the government has already seen benefits of the requirement in states where companies have changed their business models. “Insurance consumers will get lower premiums” because of it, he said.