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Obamacare in Tomorrowland (Updated)

Health care reform has been in the news a lot lately: Judges are ruling on whether the individual mandate is constitutional, companies are announcing changes to their health plans, and congressional candidates are arguing over repeal.

But there’s another big story happening, down in central Florida, where some state-level officials, a handful of consumer advocates, and a whole bunch of insurance industry lobbyists are fighting over how to implement a key part of reform.

(Update, 11:30 a.m.: The key votes took place this morning and the consumer advocates won on all counts. Details below.)

Sarah Kliff and Jennifer Haberkorn have been reporting on this for PoliticoWendell Potter, the former Cigna official turned reform advocate, filed a dispatch on the debate for the Huffington Post. What follows is my own take, informed by their articles as well as some of my own reporting.

The issue at hand is how insurance companies spend their money. All insurance carriers have what is known as the “medical-loss ratio.” It refers to the amount of revenue that insurers eventually devote to actual patient care. Wall Street and the industry like that number to be as low as possible, because, among other things, a low MLR leaves more room for profits. Consumer advocates prefer the MLR to be as high as possible, because it rewards social responsibility and, to some extent, efficiency. 

The architects of health care reform largely saw things from the standpoint of consumer advocates. And the Affordable Care Act reflects this. It sets a minimum standard for every insurer’s MLR--80 percent for plans that cover individuals and small businesses, 85 percent for plans that cover large groups. That's higher than many commercial insurers run now. Once the regulations are in place, insurers that don’t bring their balance sheets in line with the MLR standard will have to provide beneficiaries with rebates.

The significance of this regulation is the subject of some debate, even among like-minded advocates of reform. I know experts who think it’s a critical bulwark against high premiums. And I know experts who think, ultimately, it will have little effect. But even those experts who downplay the policy importance see it as a bellwether. If you watch how the administration decides to write and enforce this regulation, they say, you’ll get a sense of how it intends to handle other regulations--and, more generally, the way it intends to deal with the insurance industry over the next few years.

That brings us to the big debate taking place in Florida. Like so many other elements of the Affordable Care Act, the MLR regulations leave a lot of room for interpretation and discretion. Although the law sets the numerical targets for what insurers spend, it doesn’t stipulate exactly how the government should tally and process those numbers. Instead, it lets the Secretary of Health and Human Services (i.e., Kathleen Sebelius) make those decisions. And it instructs her to consider, although not necessarily follow, the recommendation of the National Association of Insurance Commissioners--the group meeting now at the Gaylord Palms Resort, just down the road from Disney World.

The group has already laid down a template for what the regulation should look like. And, overall, the template is closer to what the consumers want than what most insurers and their allies want. But with a final vote scheduled for Thursday, representatives for industry groups have been lobbying furiously to weaken the regulations. Potter, in his Huffington Post dispatch, says "the insurance industry and other special interests are represented here by more than a thousand lobbyists"--compared to less than 30 on the consumer side. (I haven't been able to verify this, but it certainly wouldn't surprise me to see a large disparity.)

And what do these lobbyists want? Brokers don’t want their commissions included in the MLR calculations, since insurers would do everything in their power to minimize those commissions--perhaps even bypassing the brokers altogether. Many insurers want the ability to figure out an average MLR for all of their subsidiaries, across state lines, rather than calculate one for each “licensed entity” in each state. Some insurers also want to change the “confidence interval” for calculating some special exceptions to the MLR--which is really complicated to explain but would have the effect of lowering the threshold. (For more details, see Julie Appleby's report at Kaiser Health News.)

The issues are even more complicated than they sound and, on some of the narrower points, the insurer lobbyists make reasonable arguments. Overall, though, giving ground to the insurers would dilute the power of the MLR ratio to restrain premiums. For example, if insurers can average out the MLR across state lines and across lines of business, they'll still have the ability to jack up premiums--and extract high profits--in areas with little insurance competition. As for the brokers, the whole point of reform is to make insurance more accessible to individual consumers. If it all works out, people won't need brokers to find a policy and, as a result, they won't need to pay for that service. 

By Wednesday afternoon, nobody I had consulted seemed quite certain about how the vote would go. The administration has dispatched some of its top policy officials from HHS--including Jay Angoff, Liz Fowler, Steve Larsen, and Karen Pollitz--in what appeared to be an effort to steel the commissioners’ resolve and hold the line. If the administration can say it's simply validating the judgment of state insurance commissioners, it will be much easier to issue strong regulations.

But it’s not clear whether they’ll succeed. Nor is it clear how the administration will react if they don’t. Yes, the administration wants a tough set of regulations that will make insurers behave;. But it also wants to avoid headlines about insurers threatening to drop plans because “Obamacare” was too tough on them. I don't have a great fix on how this debate is playing out internally, but I gather not every official within the administration agrees on how to reconcile those goals. 

So stay tuned, on Thursday and beyond...

Update: Consumer advocates, with an assist from the White House, prevailed in a series of formal votes on Thursday morning. Via Kliff and Haberkorn at Politico:

State regulators unanimously approved a crucial health care reform recommendation Thursday morning, outlining what costs insurers can count as medical spending and bringing to a close six months of contentious debate. ...
Despite a last-minute flurry of offered amendments, the proposed regulation moved forward unchanged. Commissioners offered four ultimately unsuccessful, amendments: to remove brokers fees from the calculation and to aggregate spending calculations nationally rather than at the state level and two amendments related to giving insurers credits to help them reach the spending levels.

From Orlando, law professor and consumer advocate Timothy Jost sends word that he and his allies are pleased:

We are very proud of the NAIC this morning. Congress asked them to do a job and they did it with openness, integrity, and dignity. Although we did not get everything we wanted in the MLR rule as consumers, we think the rule is fair, workable, and faithful to the law.

The reaction from America's Health Insurance Plans is a bit less sanguine. In a statement, AHIP president Karen Ignani says:

The current MLR proposal will reduce competition, disrupt coverage, and threaten patients’ access to health plans’ quality improvement services.

Meanwhile, Time's Kate Pickert provides a sense of how hard the insurance industry fought to dilute them:

 I'm told before the meeting insurance company CEOs were busy working the phones, personally calling state insurance commissioners and practically begging them to weaken the MLR guidelines already approved by an NAIC committee. At the meeting itself, I'm told there was one insurance company employee or lobbyist on hand for every insurance commissioner or staff member.