Author:
Tim Hiller
July 14, 2010
Issue Areas:
Insurance, Policy Implementation
As reported by various media outlets, Maine’s Superintendant of Insurance, Mila Kofman, has asked the Department of Health and Human Services (HHS) for a special exemption from the Medical Loss Ratio (MLR) requirements included in the Patient Protection and Affordable Care Act (ACA) on behalf of insurance company HealthMarkets, Inc, a privately based Texas company. The ACA mandates that every insurer selling individual insurance (the HealthMarkets, Inc. plan in question, MEGA, is an individual insurance plan) spend at least 80 cents of every premium dollar on activities which improve health care. Kofman argues that if Maine is not granted an exception from the MLR requirement that HealthMarkets, Inc. will be forced to pull out of the Maine individual insurance market, leaving Maine residents with only one option on the individual market.
My first reaction was that, when you are one of two games in town like HealthMarkets is, it seems awfully easy to threaten to leave. My suspicions were aroused further by Kofman’s statement that it wasn’t that big of a deal to grant Maine and exemption:
Ms. Kofman noted that Maine already requires an MLR of 65%, which she said isn’t functionally much lower than the new 80% rule because the state has its own rules for what constitutes medical expenses.
That, of course begs the question of why there is a need for the exemption from the federal MLR requirements at all if they are functionally equivalent.
However, upon a closer look, it turns out that according to state data, HealthMarkets, Inc. is actually losing money on its MEGA Health Insurance policies sold on the individual market in Maine:
| Maine Individual Underwriting Gain | |||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 5 year average | ||
| Anthem | -4% | -7% | -5% | 1% | 5% | -2% | |
| MEGA (before refunds) | 10% | 3% | 12% | -1% | -11% | -2% | |
| HPHC Insurance Company | entered market 2008 | 0% | 0% | ||||
| Individual Totals (3 Companies) | -4% | -6% | -3% | 0% | 1% | -2% |
State data indicates that over the last 5 years HealthMarkets’ profit margin has averaged at -2% per year – a loss– despite posting mind bogglingly low MLRs:
| Maine Individual Loss Ratios | |||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 5 year average | ||
| Anthem | 83% | 90% | 90% | 88% | 85% | 88% | |
| MEGA | 14% | 43% | 38% | 53% | 62% | 51% | |
| HPHC Insurance Company | entered market 2008 | 90% | 90% | ||||
| Individual Totals (3 Companies) | 81% | 87% | 85% | 84% | 83% | 84% |
Over the last 5 years, MEGA, a subsidiary of HealthMarkets spent 1 out of every 2 premium dollars on actual health care costs. At the same time, the top 5 executives at Health Markets, Inc collected over 37.2 million in compensation for 2008 alone. So to what extent can MEGA’s negative profit margin in Maine be attributed to the undeniably tight individual insurance market in Maine, overly generous executive compensation packages, inefficient administration or some combination of other factors? Keep in mind that the purpose of MLR requirements is to make sure that insurers devote more money to health care, reduce administrative costs, increase efficiency and deliver a better deal to consumers.
I do not know whether or not the special exemption sought by Maine is warranted. But, greater transparency regarding what is driving HealthMarkets, Inc. poor profit margins would benefit consumers and policymakers in Maine and elsewhere. Certainly, the state insurance commissioners and the insurers themselves need the public to understand all the contributing factors – including administrative inefficiencies and compensation rates– if we are to expect health insurance reform to succeed in Maine and nationwide.
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