December 1, 2010

Interim Final Medical Loss Ratio Rules

The federal Department of Health and Human Services (HHS) interim final rule on health plan medical loss ratios specifies the percentage of premium revenues that must be spent on direct patient care expenses. It also identifies a set of quality improving activities that can be counted as a direct care expense, not as administrative expenses. Quality improving activities include initiatives to improve health outcomes compared to a baseline, reduce health disparities among specified populations, prevent hospital admissions, improve patient safety and reduce medical errors, increase wellness and promote health activities, and enhance the use of health care data to improve quality, transparency, and outcomes. The rules also specified that any health information technology expenses incurred to support a quality improving activity count as part of the activity, not an administrative expense. However, expenses to maintain or upgrade the insurers’ claims adjudication system remain an administrative expense.