The two most significant—and controversial–Affordable Care Act (ACA) insurance reforms of 2012 are the minimum medical loss ratio (MLR) rebate and the summary of benefits and coverage (SBC) requirement.  On Friday, May 11, 2012, further regulatory guidance was released on both of these initiatives.

Tidying Up The MLR Rules

The minimum medical loss ratio requirement provides that, beginning with 2011, health insurers must spend a minimum percentage (80 percent in the individual and small group market and 85 percent in the large group market) of their adjusted premium revenues on health care claims and quality improvement expenses.  Insurers that fail to achieve this target must pay a rebate to their enrollees (individuals for nongroup plans and employers for group plans) based on the extent to which the insurer’s actual MLR falls short of the statutory minimum MLR.  These rebates will first be paid in the summer of 2012.

The MLR requirement (also referred to as the 80/20 rule) has, despite its wonkish nature, emerged as a potentially important reform politically.  Indeed, in a May 11 post on Time Magazine’s “The Page” blog,  Mark Halpern described it as a potential “game changer” in the attitude of American’s toward the ACA.  By August 1 of 2012, an estimated 16 million Americans or their employers will receive about $1.3 billion in rebates (most of which will be applied toward premium reductions rather than actually being paid out in checks).  More importantly, as HHS Secretary Sebelius noted in a blog post, also dated May 11, insurers are reducing premiums prospectively to avoid paying rebates, resulting in savings for health insurance consumers.

HHS issued interim final regulations on the medical loss ratio requirement in December of 2010 and final regulations in December of 2011, but is still tidying up a few final matters.  The latest regulatory tweak was issued on May 11.  It addresses the obligation that insurers who meet or exceed the minimum medical loss ratio have to notify their enrollees of this fact.  This issue had been left open by the final rule, as well as the question of whether insurers would have to provide information to their enrollees of their MLR performance only for the reporting year or for prior years as well.

Consumer advocates had urged HHS to require all insurers to inform their enrollees of their MLRs and to report not only information on the current year but also on prior years to evaluate performance over time.  Insurers had argued that these requirements would impose an unnecessary burden on them.  The rule adopts a compromise, requiring insurers that achieve the MLR target to report this fact to their enrollees, but only for the first year of the MLR requirement to alert consumers as to its existence.  The rule does not require disclosure of MLRs for prior years; indeed it does not require insurers who meet the MLR target to disclose their current year MLR.

Insurers must, however, notify enrollees that MLR information for current and prior years is available at  Indeed, HHS will make available the entire MLR form filed by each issuer for those who wish to enquire further. Insurers who achieve the target do not need to send their enrollees a separate notice of this fact, but must note this fact prominently in the first communication they otherwise have with their enrollees after July 1, 2012.  The notice requirement does not apply to mini-med, expatriate, or student health plans, or to insurers with fewer than 1,000 enrollees in a particular market and whose experience is thus not “credible” under the MLR regulations.

Flexibility On The SBC, But Not On Its Core Purpose

Beginning in September, 2012, every insured and self-insured health plan must provide its enrollees a uniform summary of benefits and coverage describing clearly, uniformly, and succinctly in 4 pages (double-sided) the benefits the plan covers and the limitations and exclusions that it imposes.  Included in the form are “coverage facts labels” that identify the costs that the insured and the insurer are likely to bear for common health care experiences—currently maternity and type II diabetes.   When fully implemented, the SBC will provide insurance shoppers with a uniform tool like now-familiar nutrition, gas mileage, and energy efficiency labels for facilitating comparison shopping and helping enrollees better understand their coverage.

The SBC requirement is very popular with consumer advocates and was well received when it was consumer tested.  Nevertheless it has been resisted fiercely by insurers and employers, who, too embarrassed to publicly defend the lengthy, confusing, incomprehensible, and non-comparable disclosure forms they now use have been quietly but intensely pressuring the administration to delay, dilute, or abandon the SBC requirement.  Their primary complaint is that it is simply too hard for them to describe their products in a single brief form and that the timeframe for accomplishing this is simply too short.

On May 11, 2012, the HHS, Labor, and Treasury, the three agencies that are implementing the SBC requirement, issued a series of 14 frequently asked questions (FAQs) to address these concerns.  Consistent with the approach the agencies have been taking to ACA implementation generally, the FAQs attempt to offer flexibility and accommodate legitimate compliance concerns while holding to the fundamental purpose of the requirement and not bending on the implementation deadline.

First, the FAQs clarify several issues regarding the provision of the SBC. The SBC can be provided electronically, rather than on paper, if enrollment or application is otherwise handled online or if electronic delivery has been requested, as long as a paper copy is offered as an alternative.  An SBC must be provided when an individual or employer applies for coverage, but if negotiations ensue, another SBC need not be provided until coverage finally commences.  If an individual or employer is provided with an SBC before applying, and none of the terms change upon application, or if an SBC is provided at application but none of the terms change upon enrollment, a new, duplicate SBC is not necessary.  A SBC must be provided if an individual or employer shopping for coverage specifically requests an SBC or generally asks for a summary of coverage, but need not be provided in response to a more general inquiry about coverage options.

SBCs may include references to the Summary Plan Description or other plan documents, as long as the SBC fully discloses the content that it is required to disclose.  Minor variations are permitted in the electronic presentation of an SBC, including allowing the reader to scroll through the document instead of having to move through it page by page.  In a development that could prove quite useful to consumers, issuers and plans (or agents and brokers) are permitted to break out elements of the SBC for comparison purposes, for example comparing deductibles across plans, as long as the entire SBC is also available.

To facilitate compliance (and in response to complaints about the difficulty of compliance) the agencies have reiterated their intention not to penalize plans that are making good faith efforts at compliance in the first year.  The agencies are also providing a calculator that plans may use to input a discrete number of plan variables to populate the coverage example chart during the first year, as well as translations to Spanish, Chinese, Tagalog, and, soon, Navaho.

For the first year, employers that use two or more separate issuers to provide different parts of their health plan (pharmacy benefit or behavioral health carve-outs, for example), can offer two or more separate SBCs to their employees, describing different parts of the plan.  This is bound to be confusing to employees, but will give employers more time to figure out how to coordinate disclosure when they contract with several disparate sources of coverage. Finally, the agencies announced that the SBC will not need to be provided for the first year for expatriate plans and that insurers can delay up to September 23, 2013 (when exchange enrollment will open) providing the SBC to enrollees in closed blocks of business.

The MLR rebates and the SBC disclosure will be the first concrete experience that millions of Americans will have with the ACA.  The administration continues to work toward ensuring that this experience in fact occurs, and that it will be a positive one.  ACA implementation presses on.