The Affordable Care Act regulations set forth Medical Loss Ratio rules that have gone into effect in 2011. These rules require health insurers to spend at least 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts.
The motivation behind the minimum MLR regulation is for premiums to reflect the actual cost of care enrollees receive, restricting profitability and administrative costs to reasonable levels for the insurer.
A study has been completed by the Changes in Health Care Financing Organization, (HCFO) to provide state-level estimates of the size and structure of the individual market for health insurance and to investigate the impact of the new MLR regulation.
Dr. Jean Abraham, one of the study's authors says, “Medical loss ratio regulation is creating a lot of stir in the insurance industry. “As we began studying this issue, we discovered that there was almost no research evidence to understand what effect this new regulation might have on the industry."
The primary study data was the National Association of Insurance Commissioner’s (NAIC) Annual Statement of Information for Health Insurance Companies for 2002 to 2009.
Findings
The researchers report finding extensive variation in the MLR across states. New Hampshire was the state with the lowest MLR at .629, but four states had enrollment-weighted MLRs in excess of one (1.0). This occurs, according to the researchers, when one or more large insurers incur claims that exceed premiums for the year. Research results indicated that "146 of the 371 company-state observations were below the 80 percent minimum MLR requirement". In 21 states, at least half of insurers would not meet the threshold. Additionally, nine of the 21 states would have at least half of insurers not meeting the threshold.
In 12 states, at least 50 percent of total member-years of enrollment are with insurers that do not meet the minimum MLR.
Beneficiaries in poor health could be vulnerable to coverage disruption if insurers not meeting the threshold decide to exit the market.
Analysis
As the report author's findings suggest these rules may cause serious disruption in the individual market - - particularly are insureds in smaller states with lss competition if insurers withdraw from those states. In the past it has been shown in Kentucky and elsewhere, when large insurers drop out of a state it can have serious impact on healthcare for many years. That is not the result that was intended with the Affordable Care Act.
