Major insurers are trying to change their accounting practices in order to bypass some of the restrictions under the new healthcare law. The law requires that large group plans should spend 85% of the premium amount on actual medical care and small plans must spend 80% of the amount. But it seems insurance companies are now trying to pass some administrative costs as medical costs in order to circumvent the law.
Some insurance companies saw their stocks fall after the health care reform bill was signed into law because of the requirements of the new medical loss ratio (MLR). MLR measures the spending by insurers and indicates their potential profits. To deal with the new rules regarding MLR, several insurance companies seem to be making controversial changes in their accounting practices.
For example, Well Point Inc. has reclassified millions of dollars from administrative costs to medical costs. Its spokesperson denied the charge and said that the company will cooperate with regulators for meeting MLR requirements.
Other insurers are refusing to comment on the changes in accounting procedures and whether reclassifications are being done by them. Recent statistics show that insurance companies are currently quite far from the required spending levels under the new law – they spent about 74% of the money on medical costs on average last year. They continue to give more importance to making profits than to funding proper care for people. This is shown by the high percentage of non-medical costs in their MLR.
Regulators at the Department of Health and Human Services have already started pushing insurers towards compliance to the new rules. It had held a meeting with the National Association of Insurance Commissioners, a major health insurance organization, for giving various recommendations to meet the new MLR requirements. The agency is also taking steps to release details on regulations quickly so that insurance companies have enough time to incorporate the changes. The new rule will come into effect by the start of the next year.
There is likely to be a lot of criticism, and perhaps even regulatory action, if it is proven that dubious practices are being employed by insurance companies to show compliance to the new rules. The long struggle to bring in healthcare reform could prove futile if insurance companies do not follow both the letter and the spirit of the new law.