Medical loss ratio rule a big gain for consumers

According to the Urban Institute, the medical loss ratio (MLR) regulation in section 1001 of the Patient Protection and Affordable Care Act (ACA) has achieved its purpose of increasing value to consumers who purchase health plans. The MLR regulation required that insurers meet a minimum MLR, which is the amount an insurer pays out for covered expenses of its enrollees. The MLR rule limits the share of premium revenue that may be used for overhead or counted as profit, therefore passing along better values to consumers. This report is part of the Urban Institute’s long-term project to study the effects of the ACA.

Medical loss ratio. The report defines MLR simply as medical claims incurred as a percentage of health premiums earned. The Urban Institute reported average MLR by market segment and year to observe any changes to consumer value. The study noted that MLR increased from 2010 to 2012 in the individual and small group markets following the implementation of the rule, which required MLR for these markets to be at least 80 percent. Part of the explanation for increased MLR in the individual market stemmed from growth in claims costs but moderate growth in premiums. Although MLRs increased in the small group market, the changes were modest because insurers were already close to the ACA-mandated 80 percent MLR. This report estimated that consumers saved $3.9 billion on premiums in 2012 due to the implementation of the requirement. Another report from the Commonwealth Fund found that the MLR rule resulted in $5 billion in savings from 2011 through 2013.

Findings. The report indicated that the MLR regulation’s goal of constraining excessive insurer profits was achieved. The implementation of the rule caused insurers to modify behavior and spending to increase the value passed on to consumers. The MLR rule held premium growth in check, and insurers were motivated to reduce administrative overhead costs to ensure that more money was spent on actual health claims. Individual market insurers reduced overhead by 2.3 percent of premiums from 2010 to 2012. The report noted that commentators predicted market disruption, doubting that insurers could remain profitable while meeting the regulation. Some pointed out that private insurers were being forced out of markets due to the rule, resulting in less competition. The report found that the predicted disruption did not occur; however, if found that some industry groups felt that agents and brokers did suffer, because insurers cut agent compensation to reduce overhead. The Urban Institute recommended that further research focus on assessing long-term effects of the MLR on cost containment.

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