Health plans say MLR doesn't help their fraud-fighting cause

Provisions under the Affordable Care Act that specify administrative costs for health plans don't take into account the cost of fraud prevention programs that health plans already have in place, according to a new brief released by America's Health Insurance Plans.

The new medical loss ratio (MLR) regulation, which took effect this year, limits health plans to spending 15 percent of health insurance premiums on administrative costs, leaving 85 percent to be spent on medical care. AHIP says the ratio hinders health plans' fraud prevention initiatives because it only provides a credit for money that was paid out for fraudulent billing and recovered – it doesn't include the cost of developing and administering anti-fraud programs. 

[Could the new MLR increase premiums?]

According to AHIP, the MLR regulation provides an incentive for health plans to pay out more claims initially to get credit for their fraud detection and recovery activities. It doesn't encourage plans to manage robust fraud prevention efforts.

"This is exactly the wrong kind of incentive, especially given the increased priority of fraud prevention and detection in the new law," AHIP officials said. The report shows that when health plans prevent fraud they can pass on the savings to beneficiaries.

AHIP officials said fraud is more likely to occur in unmanaged fee-for-service systems like Medicare, where providers are reimbursed for the number of services they provide.

"Conversely, in the private health insurance system, health plans have developed innovative disease management, care coordination and quality control programs that help ensure patients are getting the right care at the right place and at the right time," AHIP said. "These programs improve the quality of patient care and reduce the likelihood of fraud."   

[Read what HHS Secretary Kathleen Sebelius said of the MLR.]

The Department of Health and Human Services based the MLR on recommendations from the National Association of Insurance Commissioners. The American Medical Association supports the MLR. AMA President Cecil B. Wilson, MD, said, "Patients deserve to get the maximum value from their health insurance premiums."

"We are pleased that HHS did not allow the health insurance industry to claim administrative expenses as medical losses, artificially inflate the medical loss ratio or calculate their ratios at the national level," Wilson said. "The AMA supports HHS' decision to adopt the NAIC recommendations in full and urges HHS to keep the health insurance industry from diverting premium dollars away from medical care."

Read the AHIP brief here.