Health insurer rule draft yields few surprises on Wall Street

Friday, September 24, 2010

Health insurer rule draft yields few surprises

INDIANAPOLIS — The framework for a key health care reform rule governing insurance companies wound up falling mostly in line with Wall Street expectations, according to a Leerink Swann analyst.

A draft of the rule for medical loss ratios was released Thursday by the National Association of Insurance Commissioners.

Starting next year, insurers will be required to meet minimum medical loss ratios, or MLRs, of 80 percent for individual and small group coverage and 85 percent for large group coverage. These ratios measure the percentage of premiums an insurer spends on health care, and association members spent months discussing which variables should go into this equation.

The draft they produced excludes a “broad array” of taxes when calculating the ratio, and analyst Jason Gurda said in a research note that favors insurers.

Excluding some taxes essentially makes it easier for insurers to meet their minimum percentages.

Insurers and analysts have said the individual and small group MLR minimum may cause market instability because insurers could pull out of some markets if they are unable to meet them.

Gurda noted that the NAIC advocates a transition period to phase in the minimums. But he said he hasn’t seen support from the White House or the Department of Health and Human Services for that, “and we wouldn’t count on it being adopted.”

Miller Tabak analyst Les Funtleyder said in a separate note the rules favor larger insurers because they have better actuarial systems and a larger pool of patients over which to spread risk.

The NAIC draft must be approved by some additional committees and then voted on by all members of the association before the recommendation is sent to the office of HHS Secretary Kathleen Sebelius.

Gurda said he doesn’t expect to see a final rule from HHS until after the November elections.

Health insurance stocks bounced up and down for well over a year as the health care reform debate moved through Congress. Friday afternoon, the sector shares climbed at a slower pace than the Standard & Poor’s 500 index, which was up nearly 2 percent.

Shares of UnitedHealth Group Inc. rose 33 cents to $35.77, WellPoint Inc. was up 19 cents to $56.69, Aetna Inc. rose 37 cents to $31, Cigna climbed 77 cents, or 2.2 percent, to $35.91, and Humana Inc. was up 24 cents to $50.22.

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