Tags: Health | Insurers | Tax | Cost | Spending | Rule

Health Insurers Can Include Tax Cost in Spending Rule

Monday, 22 Nov 2010 02:08 PM

U.S. health insurers can include the cost of federal taxes in determining whether they spend enough on patient care, increasing the amount that can be kept for administration or profit under new rules. Company shares rose.

Health plans led by Indianapolis-based WellPoint Inc. may also win delays from the spending requirements if individual states show the federal government that the so-called medical-ratio rules will destabilize insurance markets, the U.S. Health and Human Services Department said in a statement today. The regulations are part of the U.S. health overhaul that President Barack Obama signed in March.

The tax decision may save the industry $313 million it would have had to rebate to consumers in 2011, Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, estimated in an October note. Under the rules, in effect next year, companies will have to meet a spending threshold of at least 80 percent for care they provide, or return the difference to customers.

“This suggests the administration is perfectly willing to be reasonable from an insurance point of view and try to preserve the private insurance market,” said Dave Shove, a BMO Capital Markets analyst in New York, in a telephone interview. “The nervousness among investors was over whether the administration would take the point of view that says insurers aren’t entitled to a fair profit.”

Shares Gain

Health insurer shares rose after the announcement, with WellPoint, the biggest plan by enrollment, climbing $1.70, or 2.9 percent, to $60.31 at 10:35 a.m. in New York Stock Exchange composite trading. The six-member Standard & Poor’s Managed Care Index climbed 1.6 percent.

The federal government expects as many as 9 million Americans will receive a total of $1.4 billion in rebates starting in 2012, the health department said in its statement.

“These new rules are an important step to hold insurance companies accountable and increase value for consumers,” U.S. Health Secretary Kathleen Sebelius said at a Washington press conference announcing the rules.

The regulations require health insurers to spend at least 80 percent of premium revenue on patient care for small and individual plans, and 85 percent for large plans. Health insurers have lobbied the federal government to make the definition of “patient care” as broad as possible, to deduct taxes from the calculation, and to create waivers in cases where the rules would disrupt the insurance market.

Rule Exemptions

Sebelius mostly kept to the spending rule recommended last month by the National Association of Insurance Commissioners, a group of state regulators, said Shove, the BMO analyst. The federal rule exempts expatriate insurance plans and so-called mini-med policies that employers offer to part-time and low-wage workers. Both decisions should benefit Aetna Inc. of Hartford, Connecticut, and Philadelphia-based Cigna Corp., Shove said.

The law will expand coverage to 32 million uninsured people, according to the Congressional Budget Office. It also limits insurer practices such as excluding from health coverage those with pre-existing medical conditions.

The administration gave insurers leeway on federal taxes as congressional Democrats argued that lawmakers hadn’t intended to do so. In an Aug. 10 letter, the chairmen of six congressional committees said they meant the law to omit only the insurance taxes created under the bill, not payroll or income levies.

The legislation says the medical ratio should be calculated “excluding federal and state taxes.”

Gupte estimated that rule will cost the top six for-profit insurers $726 million in 2011 should companies be allowed to deduct federal taxes from premiums and $1.04 billion if they can’t.

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U.S. health insurers can include the cost of federal taxes in determining whether they spend enough on patient care, increasing the amount that can be kept for administration or profit under new rules. Company shares rose. Health plans led by Indianapolis-based WellPoint...
Health,Insurers,Tax,Cost,Spending,Rule
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2010-08-22
Monday, 22 Nov 2010 02:08 PM
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