October News - Analysis

HEALTH INSURANCE 
The Hon. George Steeh, U.S. District Court Judge for the South Eastern Division of Michigan issued the first legal ruling on the constitutionality of the 2010 Patient Protection and Affordable Care Act, determining that there is a rational basis to conclude that decisions to forego health insurance drive up the cost of health care and thereby affect interstate commerce. In rejecting portions of the Plaintiffs' constitutional challenge to the Federal legislation, he concluded that a decision not to obtain health insurance is effectively a decision to pay for medical care out of pocket, and these decisions, in the aggregate, "have clear and direct impacts on health care providers, taxpayers and the uninsured population who ultimately pay for the care provided to those who go without insurance." His denial of injunctive relief and dismissal of the constitutional claims is likely to be appealed. Thomas More Law Center, et al, v. Obama Slip Copy, 2010 WL 3952805, E.D. Mich, October 7, 2010 (NO. 10-CV-1156).

This Michigan based case is one of fourteen pending trial court challenges to the individual coverage mandate. Federal cases pending in Florida and Virginia HAVE produced different rulings on similar claims. Judge Roger Vinson, US District Court Judge for the Northern District of Florida, dismissed all but two counts of the 20 states' legal challenge to the PPACA. The case will go forward on their claims that the penalties for failure to buy individual health insurance do not constitute a form of taxation as claimed by the government. As such, they will be reviewed under the Commerce Clause of the Constitution, rather than the more expansive taxing authority granted to Congress. The other count that survived the motion to dismiss challenges the expansion of the Medicaid program. Florida ex rel McCollum v. U.S. Dept of Health and Human Services, 2010 WL 4010119, N.D.Fla, October 14, 2010 (No. 3:10-CV-91 RV EMT) In the Virginia Federal case, Judge Henry Hudson recently ruled on the government's motion to dismiss and determined that sufficient claims were plead to permit the case to proceed to trial. Commonwealth of Virginia, ex rel Kenneth T. Cuccinelli, III. v. Kathleen Sebelius, 702 F. Supp 2d 598 (No. 3:10 CV 188-HEH).

 

LONG TERM CARE
Long Term Care Insurance rates are expected to increase significantly in 2011. Today, over seven million Americans are enrolled in individual or group long term care policies. These insurance policies provide a defined amount of nursing home or in-home care if an insured becomes incapacitated. Rate increases of up to 30% have been requested by the largest carriers due to claims experience greatly exceeding estimates. The incidence and severity of claims , together with the longer lives of the insureds (attributable to better health in later life enabling them to reach the age when claims are more prevalent) have caused a spike in payout. In 2010, the average annual premium for a basic individual policy is $2300. Thirty percent rate hikes will increase those premiums to $3200. For individuals on fixed incomes, these increases are not likely to be absorbed and benefit reductions are probable in order to maintain the affordability of some level of coverage. Federal health care reform initiatives are creating additional uncertainty within this industry. 

 

MEDICAL LOSS RATIOS AND CONSUMER REBATES
On October 14,2010, the National Association of Insurance Commissioners (NAIC) finalized recommendations on model regulations determining the definitions and methodologies for calculation of medical loss ratios under the PPACA. These recommendations will be sent to the Department of Health and Human Services for certification after final approval by NAIC later in October. Secretary Kathleen Sebelius is not obligated to adopt the recommendations but has pledged that "for the most part, they will be followed closely". At issue is the determination of allowable expenses to be included by health insurers when meeting the statutory requirement that 80-85% of premiums collected be used to pay claims or improve the health status of patients. Beginning in 2012, insurers must issue premium rebates to consumers for profits or administrative, non-health related costs that exceed 15% of premiums collected in 2011 from large group customers and 20% for individual and small group purchasers. Insurers want more administrative expenses and overhead to be counted as benefit or health related; regulators seek to limit those amounts. The last remaining point in contention has been the treatment of federal and state taxes, and regulatory and licensing fees. Insurers seek the inclusion of taxes paid on investment income and capital gains in the determination of the MLR; several members of Congress contend that the intent was to limit the inclusion of taxes paid on revenue derived from the provision of health insurance coverage. The resolution of the rules relating to MLRs is of great significance to health insurers. If the rules are deemed too restrictive, insurers have signaled that they may abandon unprofitable product lines or markets , with the effect of lessening competition and raising costs for consumers.