WASHINGTON — The Obama administration announced Wednesday that it has rejected Oklahoma's request to shield some health insurance companies from the requirement that they spend at least 80 percent of the money they collect in premiums on medical costs.
The decision by the Department of Health and Human Services could mean nearly $16 million in rebates this year to about 70,000 Oklahomans who purchased their own health care coverage.
The state Insurance Department requested three years of lower ratios, warning that implementing the 80 percent requirement might mean fewer options for coverage in the state.
Oklahoma Insurance Commissioner John D. Doak said Wednesday, “This decision could lead to a massive disruption of our insurance markets in Oklahoma.”
But the Health and Human Services Department said the decision “will ensure consumers receive a better value for their premium dollar.”
The requirement, known as the Medical Loss Ratio standard, was part of the health care bill signed by President Barack Obama in 2010.
Companies that sell policies in the individual and small-group markets must show that 80 percent of premium revenue went to health care expenses and quality improvement, with the other 20 percent allowed for overhead and profit. Companies in the large-group market have an 85 percent threshold.
Those that fall below the threshold must issue rebates to policyholders.
Oklahoma is one of several states that asked the Health and Human Services Department to grant lower ratios until 2014, when all companies must abide by the standards. Kansas' application was also denied Wednesday.
Doak's application asked that the ratio for insurers in the individual market be 65 percent for 2011, 70 percent for 2012 and 75 percent for 2013.
The Health and Human Services Department determined that two companies, Aetna and Humana, met the 80 percent threshold in 2010 and that six others intended to adapt to the standard or would be sufficiently profitable to issue rebates
“Based on this, we do not expect any issuers to withdraw from the Oklahoma individual market,” the department said.
If the companies' ratios for 2011 are similar to those in 2010, six companies would owe about $16 million in rebates to their customers. Golden Rule and Health Care Service Corp. would have the largest obligations, according to the Health and Human Services Department.
Doak said Wednesday that some of the companies might have to comply with the standard by
“Simply put, competition is good for consumers and these MLR requirements could very well
Oklahoma's congressional delegation wrote a letter to the federal department supporting Doak's position, but consumer groups and the Oklahoma Policy Institute opposed the state's request.