New U.S. health insurance spending rules aimed at ensuring more customer dollars go toward medical care were finalized on Monday, ending a source of uncertainty for investors in the sector.
Though the limits are mandated in the new health care law, insurers such as Aetna Inc. and WellPoint Inc. did win some concessions from the U.S. government surrounding implementation of the rules and shares of health insurers mostly rose.
The rules on spending limits, known as a medical loss ratio or MLR, largely reflect earlier recommendations by a key group of state insurance regulators.
“It appears that the industry got what it was hoping for,” Joe France, an analyst with Gleacher & Co., told Reuters. “It should help the managed-care stocks — there was some concern that the regulations would be more onerous.”
Under the final rules unveiled by the Department of Health and Human Services, insurers will be able to deduct federal and state taxes from premium dollars to help meet the new spending thresholds but not taxes related to investments or capital gains.
States can also seek looser limits for up to three years.
It also allows some exemptions for smaller plans, new insurance offerings and “mini-med” policies that offer limited coverage.
Companies have said they were waiting for the rules to become concrete before giving financial outlooks for next year.
Peter Costa, a senior analyst at Wells Fargo Securities, said insurers “should move modestly higher today as it lifts some of the fear of 2011 earnings pressure in the group.”
Shares of health insurers were up 1 percent in early afternoon trade as measured by the S&P Managed Health Care Index, compared to the broader S&P 500 Index, which was down 1.1 percent.
Other insurers affected by the rules include Cigna Corp., Humana Inc. and UnitedHealth Group Inc. among others.
The health care law requires large group health plans to allocate at least 85 cents per premium dollar to medical care, not administrative costs or profit. Plans for individuals or small groups must spend 80 cents per dollar.
If plans do not spend that much on care, policyholders get a rebate. HHS said on Monday up to 9 million Americans could be eligible for up to $1.4 billion in rebates starting in 2012.
Read the rules at HHS.
