Calif. Commissioner Jones to Enforce Medical Loss Ratio Rule

California Insurance Commissioner Dave Jones has signed an emergency order to enforce the medical loss ratio. The MLR rules require insurers to annually disclose the percentage of premium revenue spent on reimbursement for clinical services and activities that improve health care quality and to provide rebates when the spending on “non-claims costs” — such as executive salaries, advertising and administrative costs — exceed 15 percent of premium revenue in the large group market or 20 percent in the small group and individual markets.

Jones said he signed the emergency order to lead the nation in enforcing the MLR — even if Congress prevents the federal government from enforcing the law or repeals health care reform.

The MLR rule is controversial in the insurance industry because insurance agent commissions are not excluded from the calculation. The Independent Insurance Agents & Brokers of America (Big “I”) has argued that these agent commissions are passed 100 percent to third parties and therefore should not be included in the formula.

Kevin Baker of San Jose, Calif.-based Suhr Risk Services, and outgoing president of Insurance Brokers and Agents of the West (IBA West), said he was somewhat concerned about the commissioner’s decision and how it will affect agents’ and brokers’ businesses. California already has the third highest unemployment rate and the nation’s second highest foreclosure rate. “Those add up to make for a difficult business environment,” Baker said.

Before Jones’ emergency order can take effect, it needs to be approved by the state Office of Administrative Law.

Meanwhile, Jones plans to create a Deputy Commissioner position for Health Care Policy and Reform to give his office the authority to reject excessive premiums on health insurance. The commissioner said he wants to protect consumers and create a level playing field between consumers and insurance companies. He also wants to ensure California has a vital and competitive market in which insurers want to do business and consumers have choices in the marketplace.

Topics California Profit Loss Agencies