NEW YORK (CNNMoney.com) -- Industry experts say more insurers will drop health care coverage or go out of business if they are forced to meet a Jan. 1 deadline that requires them to boost the money devoted to providing care.
The Obama administration is awaiting the recommendation of the National Association of Insurance Commissioners, meeting in Orlando this week, for how and when to implement key changes to the "Medical Loss Ratio" rule.
Under health reform, beginning 2011, insurance companies will have to spend 80% to 85% of the premiums they collect on care instead of toward their own profits and overhead costs.
Prior to reform, requirements varied from state to state. In some cases, insurers didn't have to meet any minimum requirements.
For example, some plans have a 40% loss ratio. That means individuals could be paying $1 for 40 cents of care.
Beginning in 2012 If insurers don't increase that loss ratio to 80 cents per dollar paid, they will have to give customers a rebate for the difference .
Scrambling for coverage. The government has tasked NAIC with voting on the final rules that determine how quickly insurers have to comply with the new regulation.
The insurance industry is on edge, claiming many insurers won't be able to meet the New Year's deadline without causing significant disruption to their businesses.
For that reason, insurers asked the NAIC to consider a "transition" period that allows insurers to gradually phase in the higher requirement.
"A transition plan that provides for an orderly progression to 2014 is essential," Karen Ignagni, president of America's Health Insurance Plans, wrote in a letter to NAIC last week, adding that the consequence of not phasing in the change would be a "potential disruption of coverage for millions of Americans and reduced competition prior to 2014 market reforms."
Survival of the fittest. One insurance industry expert agrees that the new requirement could either knock some carriers out of business or force them to drop customers.
"The issue that some carriers will leave the market as a result of this is real," said Deborah Chollet, senior fellow and health economist with Washington-based Mathematica Policy Research.
"Some companies just won't be able to make it," she said.
Setting the new standard is the government's way of forcing insurers to become more efficient.
"It's survival of the fittest," she said. "Big carriers can meet the new rule."
Even if the smaller carriers exit the market, Chollet said that most individuals will easily be able to find coverage from large carriers who can meet the new standards.
Phase in transition. The NAIC has raised some concerns about whether insurers can meet the 80% threshold by next year and suggests that a phased in approach would be best.
"In the absence of the transitional period, the markets of some states are likely to be 'destabilized,'" the group said.
"We have some carriers who have already exited the market in Iowa. Others are dropping health insurance products," said Iowa Insurance Commissioner Susan Voss, president-elect of the National Association of Insurance Commissioners.
Some states, including Maine and Iowa, have already asked for an extension on the Jan. 1 deadline.
In a letter last week to Health and Human Services Secretary Kathleen Sebelius, the group said that all states may need a phase-in approach.
"Several companies are telling us they can meet the MLR requirement in three years, but not now," Voss said.
Puerto Rico's governor called on Washington to change federal bankruptcy laws to help the island get out from its debts. More
The Facebook tool for turning profile photos into rainbows went viral over Pride weekend. More
Richard Branson picked these three businesses as his favorite in the final of the "Pitch to Rich" competition. More
An estimated 5 million more salaried workers may soon become automatically eligible for overtime pay, thanks to a pending federal rule change. More