Insurers Spent Less Than 1 Percent of Premium Dollars on Health Care Quality Improvement In 2011

Health insurance companies reported spending an average of less than 1 percent of the premiums they collected from policyholders in 2011 on activities directly supporting improvement of health care quality, according to a recent study from the Commonwealth Fund. The report, Insurers’ Medical Loss Ratios and Quality Improvement Spending in 2011, found that insurers spent a combined $2.3 billion on direct quality improvement activities―an average of $29 per subscriber.

Under the Patient Protection and Affordable Care Act (ACA), insurers are required to spend at least 80 to 85 percent of premiums on medical claims and quality improvement activities, or pay rebates to consumers. This is known as the minimum medical loss ratio (MLR) rule. For purposes of calculating MLR, quality improvement expenses are those for activities that are likely to improve health outcomes, prevent hospital readmissions, improve patient safety and reduce medical errors, and increase wellness and health promotion.

Variation in quality improvement spending. According to the report, there was substantial variation in reported quality improvement expenditures among insurers. Carriers in the top quartile of the range reported spending more than $40 per member, compared to less than $12 per member in the bottom quartile. The median investment in quality improvement among provider-sponsored plans was $37 per member, compared to $23 spent by non-provider-sponsored plans. Nonprofit plans spent $35 per member, compared to $19 spent by the median for-profit plan, which spent the least. Publicly traded and non-publicly traded plans spent similar amounts per member ($26 and $22, respectively).

A breakdown of insurers’ quality improvement expenditures found that 17 percent of the total spending on these defined activities went to health information technology, 51 percent to improving health outcomes, 9 percent to preventing hospital readmissions, 10 percent to patient safety, and 13 percent to wellness. Insurers also reported the dollar amount they paid to providers to encourage quality improvement through incentives and bonuses. This total amounted to an additional 0.35 percent of premium revenues in 2011, the Commonwealth Fund noted.

MLR rebate. Nonprofit and provider-sponsored plans were more likely than for-profit and non-provider-sponsored plans to meet the ACA’s MLR requirement that they spend at least 80 to 85 percent of premiums on medical claims and quality improvement. In the small and large group markets, 3 percent to 8 percent of nonprofit plans owed rebates compared to nearly 25 percent of for-profit plans. In the individual market, only 8 percent of nonprofit plans owed consumer rebates, compared to 47 percent of for-profit insurers. Seven percent of provider-sponsored plans in the individual market owed rebates compared to 40 percent of non-provider sponsored plans.

The study is based on the MLR rebate forms that insurers filed with the Center for Medicare and Medicaid Services for 2011. For more information, visit

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