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The federal government has denied Indiana's request to waive new rules for the state's insurance providers, meaning their customers will get rebates if the company fails to comply.

Hoosiers who buy health insurance on their own may receive rebates starting next year after the federal government refused to waive a requirement under the new health reform law that insurance companies use at least 80 percent of premiums on medical care. No more than 20 percent can be spent on profits, marketing and other administrative costs.

The U.S. Department of Health and Human Services on Monday issued its ruling rejecting a request by state officials who said insurers were leaving the state because of the rule.

The federal agency said the evidence does not support that.

"We have found that market conditions do not necessitate any adjustment to the 80-20 rule and that it is in consumers' best interest that ... the law be met," said Gary Cohen, the acting director of oversight at the HHS Center for Consumer Information and Insurance Oversight.

Cohen said Indiana's health insurers already comply, are sufficiently profitable to meet the new standard or are adapting their businesses models so they'll still make money if they end up owing rebates. Insurers can reduce premiums or lower their administrative costs to avoid rebates.

Indiana Gov. Mitch Daniels, a critic of the health reform law, said the federal government's decision is another reason why the law should be repealed.

"Once again, the Obama administration took a position in favor of higher health care costs and against personal freedom," Daniels said in a statement. Indiana is among the states that are challenging the constitutionality of the health care law. The Supreme Court is scheduled to hear arguments on those challenges in March.

Dr. Rob Stone, a Bloomington emergency room doctor and health reform activist who had urged the federal government to rejrect the state's waiver request, applauded the decision.

"I think that insurance companies need to figure out how to take care of people rather than taking care of their stockholders," said Stone, a regular critic at the annual meeting of Indianapolis-based insurance giant WellPoint.

If the rule were in place last year, Hoosiers who buy plans on their own instead of getting it through an employer would have received almost $24 million in rebates, according to estimates the state included in its waiver application.

Indiana wanted the rules to be phased in so companies would only have to spend 65 percent of premiums on medical care this year and not meet the full requirement until 2015.

Indiana Commissioner of Insurance Stephen W. Robertson wrote in his waiver application that several companies have notified the state that they are withdrawing from the market.

The federal government concluded that one of the carriers had never sold individual insurance in Indiana, one had no active business in Indiana, two were meeting the new rule at the time they withdrew, one was having serious financial trouble in many states where it operated, and another specifically said its withdrawal was not related to the health care law.

"Although we looked at each one of those carefully, we concluded that they were not indicative of market destabilization that might be caused by the (new rule) and didn't provide a reason for us to be concerned that consumers were going to lose coverage," Cohen said.

Those providers combined covered 2.6 percent of the state's individual insurance market in 2010. A total 187,526 Hoosiers bought insurance on the individual market last year. The majority of Hoosiers, like most Americans, get their insurance through an employer or through a public plan like Medicare or Medicaid.

The state's largest provider of individual insurance, WellPoint/Anthem, which covers about 60 percent of Hoosiers who buy insurance on their own, spent about 77 percent of Indiana premiums on medical care last year. The company supported the state's waiver request but expects to meet the new 80 percent requirement and avoid the rebates.

The Obama administration says the requirement will make the insurance market more transparent and make it easier for consumers to buy plans that provide better value for their money

The federal government has denied waiver requests from three other states and has approved modified versions of six states' requests. The federal government is still reviewing requests from seven states.

While the new law requires health insurers to spend at least 80 percent of the premiums they collect from individuals and small groups on medical services, the minimum is 85 percent for policies sold to large groups. The rebates from those who spend less would be sent out starting next year.

Indiana had also asked the government for a permanent waiver of the new rule for high-deductible health plans sold to individuals and small groups. Almost 11 percent of Hoosiers under age 65 with private insurance use the high-deductible health plans, which combine high-deductible plans with tax-preferred savings accounts. That's one of the highest percentages among states.

The federal government turned down that request because the law doesn't give the Health and Human Services Department authority to grant it.

Posted 12:00 PM

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