Academic journal article American Journal of Law & Medicine

Preemption and the MLR Provision of the Affordable Care Act

Academic journal article American Journal of Law & Medicine

Preemption and the MLR Provision of the Affordable Care Act

Article excerpt

I. INTRODUCTION

This Note focuses on the medical loss ratio provision ("MLR Provision") of the Patient Protection and Affordable Care Act (ACA).1 The MLR Provision states that health insurance companies must spend at least a certain percentage of their premium revenue on "activities that improve healthcare quality" (in other words, meet a minimum threshold medical loss ratio) and comply with report ing requirements determined by the Secretary of the United States Department of Health and Human Services (HHS).2 Because states have historically had authority over the regulation of health insurance, there is an outstanding question as to whether or not the MLR Provision has legal authority to preempt conflicting state MLR regulations.3

Part II of this Note outlines the major requirements in the MLR Provision and discusses the history of MLR regulation in the United States. Part III discusses the likelihood that the courts will soon resolve the question of preemption regarding the MLR Provision. Part IV considers the question of preemption from the perspective of the Health Insurance Portability and Accountability Act (HIPAA) and the Employee Retirement Income Security Act (ERISA). To do so, Part IV begins by showing that ERISA and HIPAA preemption case law is a suitable reference for the issue of preemption under the MLR Provision. Part IV then analyzes case law for both ERISA and HIPAA preemption, then concludes by applying these analyses to preemption in the context of the MLR Provision and showing that, should the courts consider HIPAA and ERISA preemption in deciding the fate of the MLR Provision, state MLR regulation would likely survive preemption. Finally, Part V summarizes the arguments made and show that the evidence available strongly supports the likelihood that state MLR regulation will survive potential preemption challenges by the MLR Provision.

II. EXPLAINING THE MLR PROVISION

In 2011, the MLR Provision of the ACA began requiring health insurance companies to comply with certain standards regarding MLRs. 4 According to the MLR Provision, health insurance companies must spend a certain percentage of their premium revenue on "activities that improve healthcare quality."5 This type of spending is distinguished from "administrative expenses and profit, including advertising, marketing, overhead, salaries, and bonuses."6 For policies insuring 100 or more people (referred to as large group policies), health insurance companies must spend at least 85% of their premium revenues on "activities that improve healthcare quality" (i.e., for large group policies, health insurance companies must maintain an MLR of at least 85%).7 For policies insuring more than one person but fewer than 100 (referred to small group policies) or policies insuring one person (known as individual policies), health insurance companies must maintain an MLR of at least 80%.8 Should a health insurance company's MLR for a certain policy group fall below the required threshold for that group, the health insurance company must issue a rebate to the insured persons in that group equal to the additional amount the health insurance company would have needed to spend on "activities that improve healthcare quality" for that group if it had complied with the rates set forth by the MLR Provision.9

Congress laid the groundwork for the MLR Provision in these requirements and leftit to HHS to fill in the details.10 In both its interim and final rules, HHS provided additional requirements that health insurance companies need to abide by in order to comply with the MLR Provision. These additional requirements include exceptions to the MLR Provision requirements, reporting requirements, and other additional requirements necessary for effective implementation of the MLR Provision. 11

HHS's interim and final MLR rules establish policy groups that enjoy less severe requirements than groups subject to the full weight of the MLR Provision. …

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