Kentucky awaits word on permission to ease into new health insurance rule

FRANKFORT — Kentucky expects to know within 30 days whether it may delay implementation of a portion of the federal health care overhaul that requires insurance companies to spend 80 percent of premiums on customers' claims.

Kentucky plus 11 other states and Guam have asked federal authorities to delay implementing the requirement in the Patient Protection and Affordable Care Act. The state is concerned that the change could disrupt the insurance market and decrease competition.

Only seven insurance carriers offer health plans to individuals in Kentucky.

At least one company — Aetna — has notified state officials it no longer will offer insurance plans for individuals and companies with 50 or fewer employees. Aetna has about 1,600 Kentuckians enrolled in its individual and small group plans.

The state Department of Insurance sent federal health officials a letter Friday notifying them of the loss of Aetna effective Dec. 31. Aetna plans to continue offering insurance plans for large companies, the letter said. The company has not said whether its decision was related to the new law.

The medical loss ratio requirement means insurers must keep overhead low or refund money to clients. It was born out of concerns that companies were spending too much on executive pay and marketing while raising premiums.

In February, the Kentucky Department of Insurance asked that the ratio be increased gradually because there are too few insurance carriers in Kentucky. Currently, there are no federal medical loss ratio requirements.

Sharon Clark, state insurance commissioner, is asking that the medical loss ratio be increased to 65 percent in 2011, 70 percent in 2012, 75 percent in 2013 and 80 percent in 2014.

In 1994, the state overhauled its health insurance laws, and 43 insurance companies left Kentucky. The number of insurance carriers has increased gradually, but the state is worried companies with fewer than 1,000 clients will leave if the new provision is implemented too quickly.

Clark told federal officials that too few companies offering policies in Kentucky would substantially disrupt the market and could increase insurance costs for customers.

"We are a very small market," she said.

The smaller the market, the more overhead a company has, which makes it more difficult for a company to meet the 80 percent threshold.

There are 600,000 to 700,000 people in Kentucky with private insurance. In comparison, there are more than 800,000 people on Medicaid, the state-federal health care program for the poor, disabled and aged.

"My main motivation was to give them an adjustment period so we would not lose more companies," Clark said. "One of the best things that we can do is provide choice."

Clark said the federal government has 30 days to decide whether Kentucky may delay implementation of the medical loss ratio. If more time is needed, federal authorities may ask for a 30-day extension.

Other states that have asked to delay implementation have been granted the extra time, Clark said.