Have the MLR Rules Failed to Achieve Their Original Purpose?

Medical loss ratio laws were supposed to address the phenomenon of carriers raising health insurance rates while increasing their profits. The health care overhaul requires insurers to spend at least 80% or 85% of their premium dollars on medical care, limiting what they can spend on overhead and for profits. Companies must rebate their subscribers if they don’t make the mark.

Citing a study by the Commonwealth Fund, California Insurance Commissioner, Dave Jones said, “Some families and businesses received health insurance premium rebates this past summer because insurers failed to meet the medical loss ratio, but …at the same time some insurers increased their profits.” Among small-group and large-group insurers, the most common response to the MLR has been to shift administrative cost savings into profits and use those increased profits to pay rebates, according to the Commonwealth Fund. “Potentially, and we didn’t measure this, we’re speculating, that maybe they were doing this to subsidize those plans that offered an individual product,” said Michael McCue, report author and professor at the Department of Health Administration School of Allied Health Professions at Virginia Commonwealth University. “Maybe they were trying to offset those losses of the individual insurer.”

Individual-market insurers reduced administrative costs and profits despite increasing enrollment by almost a quarter of a million people in 2011, making consumers. Insurers in the individual market reduced overhead expenses by $560 million in 2011, which was more than those in the small- and large-group sectors. Plans that did not meet the medical loss ratio (MLR) paid customers about $394 million in rebates.

Large-group market insurers that did not meet the minimum medical loss ratio paid about $386 million in rebates and devoted more premium revenue to overhead costs. This group was able to boost its profits by $959 million.

Small-group market consumers received about $321 million in rebates. While administrative costs in this market did drop significantly, insurers chose to use the savings to increase their profits rather than passing them on to consumers in the form of lower premiums, according to the report.

Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU) has said, “There isn’t clear evidence that the MLR requirements have lowered health insurance premiums. In the states that tried loss-ratio caps prior to the passage of national health reform, premiums and healthcare costs are not lower and healthcare quality is not better. Instead, these requirements have actually discouraged health plan investments in programs that generate long-term medical care cost savings and improve healthcare quality.”

“Less than 10% of Americans received a MLR rebate this year, but virtually all health insurance consumers, group and individual, use a licensed health insurance agent or broker every year to help obtain or service their coverage. H.R. 1206 will help protect consumers, who need experienced and knowledgeable insurance agents more than ever.”

“For American healthcare consumers, the choice should be simple. Removing agent and broker compensation from the MLR calculation saves an industry whose sole function and legal obligation is to protect health insurance consumers. American health insurance agents and brokers want to remain in business – for their clients, families and employees. America should want the same for them.”

Commissioner Jones said, “I have long pushed for the authority to reject excessive health insurance rate increases and this study provides further evidence of why this change in the law is long overdue in California. Health insurers and HMOs continue to impose double-digit premium increases each year and are making larger profits when selling to individuals and families even during these tough economic times.”

Last Updated 05/25/2022

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