ACA’s medical loss ratio provision works

The Affordable Care Act’s (ACA) medical loss ratio (MLR) provision yielded more than $5 billion in benefits to consumers from 2011 through 2013, either through the rebates that insurance companies have paid to them or through reduced health plan spending on overhead, according to a new Commonwealth Fund report.

The MLR provision, which went into effect in 2011, requires insurers to spend at least 80% for small-group and individual plans or 85% for large-group plans of premiums on medical care and quality improvement.

Hall“The ACA’s regulation of health insurers’ medical loss ratio-or profits and overhead-continues to work well, after three years,” according to Mark Hall, professor of law and public health, Wake Forest University, Winston-Salem, N.C.  “There are significant consumer benefits, and no major dislocations in the insurance industry.”

Hall, and Michael McCue of Virginia Commonwealth University, analyzed the impact of the MLR provision on consumers in the study: The Federal Medical Loss Ratio: Implications for Consumers in Year 3. It looked at insurers’ filings with the Centers for Medicare and Medicaid Services. There were about 500 insurers, covering 1,000 or more members, in each of the individual, small-group, and large-group markets in 2013-a small reduction from 2011, but in line with insurance market consolidation trends.

They found that in 2013, insurers paid out $325 million in consumer rebates, down from the $513 million paid to consumers in 2012 and the more than $1 billion paid in 2011, indicating a continuing trend toward greater compliance with the spending requirements.

Insurers’ spending on activities to improve the quality of patient care has not changed, however. Such spending reflected less than 1% of premiums in 2011, 2012, and 2013.

The study also found that the MLR provision hasn’t substantially reduced competition in health insurance markets or consumers’ choice of insurance plans.

“Federal data now points to how much insurers spend on quality improvement,” lead study author Hall said. “This is an opportunity to demonstrate commitment to that aspect of consumer value.

Related:The risks and rewards of medical loss ratio comes to managed care

“Those who originally predicted major financial dislocations from MLR regulation appear to be wrong,” Hall continued. “Consumer benefits from this regulation appear not only in the form of explicit rebates, but also in the form of insurers’ reduction of administrative costs in order to come into greater compliance with the regulation.”

Other findings:

• Consumer rebates have dropped most substantially in the large-group market, dropping 80%-from $388 million in 2011 to $79 million in 2013-as plans came into compliance with the MLR rule. Rebates dropped 68%, from $400 million in 2011 to $128 million in the individual market. In the small-group market, rebates dropped 60 percent, from $289 million in 2011 to $118 million in 2013. Expenses for insurance brokers, which amount to about 3 percent of premiums, dropped only slightly, by 0.2% since 2011. 

• Insurers’ total profits have also declined only slightly, by 0.2% since 2011. Modest profit margin decreases in the individual market have been partially offset by modest increases in the small- and large-group markets, where profit margins have risen modestly to reach about 3%.