Americare (*) to mean the end of the Japan expat health insurance scam?

(*) – by “Americare”, I am referring to the U.S. health insurance reform, which detractors have derided as “Obamacare”. This is the Patient Protection and Affordable Care Act, and the related reconciliation act passed the week after.

I tracked this bit of information down surfing today.

McDonald’s is in the news because its “mini-med” health insurance program–which looks suspiciously like the kind of gap insurance that has been a controversy in the expat community in Japan–runs afoul of the Patient Protection and Affordable Care Act (PPACA or just ACA). This came to light because of the writing process for regulations to implement PPACA.

This summer, the National Association of Insurance Commissioners (NAIC), who represent the various state insurance regulatory departments, has been crafting proposed rules about something called “medical loss ratios” or MLRs. What MLR is, is the amount of an insurance premium dollar that is paid out for actual health care, as opposed to overhead or company profits. For example, an MLR of 80% means eighty cents of every premium dollar goes out for medical costs.

The NAIC rules-writing task force has been working on a definition for what qualifies as a medical expense. But along the way, a certain other issue has popped up:

Commenters are asking where provider capitation payments and travel medical insurance will fit in when states are enforcing new medical loss ratio standards.

What may have happened is that the Japan expat gap-insurance scam has been caught up in U.S. health reform, at least where the company is U.S. based or has a U.S. underwriter.


The subgroup also is looking at the idea of providing special treatment for consumers covered by expatriate or international policies that cover them while they are traveling or working outside the United States.

The ACA minimum loss ratio provisions probably do not apply to short-term travel medical policies, the subgroup says.

Long-term travel medical policies probably are affected by the rules and possibly ought to be be excluded, but the NAIC does not appear to have the authority exclude them, the subgroup says.

This means that the Obama Administration would have to grant a special waiver–a McDonald’s waiver, let’s call it– for these international expat individual policies. Otherwise, they have to pay out 80% of the premium as health care expenses. The sense I have is that what makes the gap insurance business lucrative to these insurance companies is that they are keeping much more than the 20% the new rules would allow. (15% for group policies.) Cut this back, and they aren’t going to want to write the policies here.

So you might think that the companies will just re-define their insurance as “short-term travel insurance” instead of long-term expat insurance. But then you start running deeper into the area of fraud, which is always bad when it comes to insurance and regulators.

The ACA adopts the definition of “Individual Health Insurance Coverage” that is found in the Public Health Service Act, as modified by the Health Insurance Portability and Accountability Act. It’s Section 2791(b)(5), and says:

Individual Health Insurance Coverage –
The term “individual health insurance coverage” means health insurance coverage offered to individuals in the individual market, but does not include short-term, limited duration insurance.

“Short-term limited duration insurance” is a term of art, which does not include the expat international health insurance policies. So under the ACA, it may really just no longer be possible to offer expat health insurance except where 80% of the premium is paid out on health care benefits.

The MLR rule is effective in three months (January 1, 2011). After that date, the insurer would have to rebate any premium in excess of 80% MLR unless it obtains a waiver from the Obama Administration. Arguably, after that date, barring a waiver, you ask for a refund of your premiums in excess of the 80% MLR.

So: What happens to these long-term, ehem, “travel” policies?