Medical Loss Ratio and ICD-10 conversion

Let’s look at how the new Medical Loss Ratio (MLR) that was defined as part of the Health Reform differs from the traditional definition and how it related to the ICD-10 conversion. To help ensure that millions of Americans who rely on private insurance for health care coverage receive value for their premium dollars, the Patient Protection and Affordable Care Act (PPACA) established minimum “medical loss ratio” (MLR) standards for insurers. The MLR is a basic financial indicator, traditionally referring to the percentage of insurance premium revenues health insurers spent on their enrollees’ medical claims. The MLR definitionspecified in the PPACA provision differs from the traditional MLR definition. Key differences are that the PPACA MLR allows insurers to include in their expenses spending on activities to improve health care quality and to deduct from their revenues certain tax payments and fees, and these differences will generally increase insurers’ MLRs. Beginning in 2011, PPACA required insurers to meet minimum PPACA MLR standards of 85 percent in the large group market and 80 percent in the small group and individual markets or pay rebates to their enrollees.

The federal government’s newly released final rule on medical-loss ratio requirements will allow insurers to count a certain percentage of their ICD-10 conversion costs as a quality improvement activity. This comes at a time when health care organizations are working to transition from ICD-9 to ICD-10 code sets to accommodate codes for new diseases and procedures. Health care providers and insurers have until Oct. 1, 2013, to adopt new ICD-10 code sets. The federal health reform law’s Medical Loss Ratio (MLR) rule requires health insurers in the small group market to spend at least 80% of their premium revenue on medical costs and quality improvement activities. Insurers in the large group market must spend at least 85% of their premium revenue on medical costs and quality improvement activities. The remaining percentage of insurers’ premium revenue can go toward administrative expenses or other non-clinical costs. Beginning next year, health insurers that do not meet the MLR standard must provide the difference to policyholders as rebates. Under the final MLR rule, ICD-10 conversion costs that account for up to 0.3% of an insurer’s premium revenue can be counted as quality improvement activities for the 2012 and 2013 reporting years. Any additional costs for ICD-10 maintenance and claims adjudication systems would count as administrative costs under the MLR rule.

This definitely is a good step towards making health plans more accountable but how well these costs are tracked is still a question.