Wake Forest Law Professor Delivers Positive Review Of ACA’s MLR Provision To U.S. Senate Committee

Health insurance rebates and increased value to consumers are just two of the benefits that so far have resulted from the institution of the medical loss ratio (MLR), which requires insurers to spend a specified percentage of the premium dollars that they receive on medical claims and quality improvement expenses, according to Wake Forest law professor Mark Hall, who testified on May 21 before the U.S. Senate Committee on Commerce, Science & Transportation. Under the Patient Protection and Affordable Care Act (ACA), the MLR for insurers in the individual and group market is 80 percent, and for the large group market, it is 85 percent.

According to Hall, in 2011, the first year that the MLR took effect, consumers gained $1.1 billion in health insurance rebates. Insurers apparently started to get on board with the law in 2012, he said, because in 2012, rebates dropped by approximately half, to $513 million.

Better insurance value for consumers. Health insurers’ interest in not having to make MLR rebate payments also is making health insurance a better value for consumers overall, Hall advised, since an insurer’s MLR can be increased if it reduces overhead expenses and profits. Overall profits and administrative costs were reduced by $350 million in 2011, said Hall, using data from a series of reports he co-wrote for the Commonwealth Fund with Michael McCue, professor public health at Virginia Commonwealth University. In the individual market, for-profit insurers raised their median MLR from 72 percent in 2010 to 79 percent in 2011, and in 2012, insurers reduced their administrative and sales costs and their profit margins by $1.4 billion overall, he added.

Hall conceded that not all of the reduced overhead can necessarily be attributed to the new MLR rules, as opposed to market competition, but he maintained that over $3 billion in savings to consumers resulted from the first two years of MLR regulation.

Increased transparency. Hall also claimed that the ACA’s MLR stipulation has increased both transparency and standardization for researchers and the public, since all health insurers must now report their MLR and rebate data to the Consumer Information and Insurance Oversight (CCIIO), a division of the Centers for Medicare and Medicaid Services (CMS). The CCIIO, in turn, issues a detailed data base to the public that contains insurers’ various expenses.

For the first time, Hall testified, it is clear how much health insurers report that they spend on five types of quality improvement activities, and it is now possible to analyze how different types of insurers, such as nonprofit or provider-sponsored, differ in their financial measures.

Hall minimized any negative effects that the MLR has had on the health insurance industry, and, while conceding that the individuals market is operating at a 1 to 2 percent loss, he pointed out that group markets continue to see before-tax profits of 3 to 4 percent of premiums. Hall also stated that, between 2011 and 2012, the number of active insurers declined slightly, but he added that the reduction was consistent with pre-ACA marketwide consolidation in the industry.

Recommendations. Hall pointed out that, although the ACA contains an 85 percent MLR for private plans sold through Medicare (such as Medicare Advantage and Medicare Part D), there is no MLR for private managed care organizations (MCOs) that provide coverage under Medicaid. Some states set their own Medicaid standards, he said, but he advised the Committee to consider whether or not that type of MLR oversight is functioning at an optimal level.

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