Early Experiences Implementing New Medical Loss Ratio Requirements
MyHealthGuide Source: GAO, 7/29/2011,
- Abstract – www.gao.gov/products/GAO-11-711
- Full Report (28 pages), www.gao.gov/new.items/d11711.pdf
Editor’s Note: Brokers are more inclined to direct groups toward self-funding because MLR is not monitored and generally exceeds PPACA threshold guidelines. Medical Loss Ratio (MLR) is a commonly used indicator, measuring the proportion of premium dollars an insurer used for medical claims, as opposed to other functions, such as marketing, actuarial activities, or profit. PPACA established federally required minimum MLRs for insurers operating in the individual and group insurance markets.The Patient Protection and Affordable Care Act (PPACA) established minimum “medical loss ratio” (MLR) standards for health insurers. The MLR is a basic financial indicator, traditionally referring to the percentage of premiums spent on medical claims. The PPACA MLR is defined differently from the traditional MLR. Beginning in 2011, insurers must meet minimum MLR requirements or pay rebates to enrollees. While insurers’ first set of data subject to the MLR requirements will be for 2011, and is not due until June 2012, insurers prepared preliminary PPACA MLR data for 2010.
GAO examined
- (1) what can be learned from the traditional MLR data reported by health insurers prior to PPACA;
- (2) what factors might affect the MLRs that insurers will report under PPACA; and
- (3) what changes in business practices, if any, have insurers made or planned to make in response to the PPACA MLR requirements.
GAO analyzed premiums, claims, and traditional MLR data for nearly all insurers for 2006- 2009 and interviewed a judgmental sample of seven insurers–selected to provide a range based on their size, profit status, and the number of states in which they operated–about their experiences using the PPACA MLR definition.
Traditional MLR
- Medical care claims / Premiums
PPACA MLR
- (Medical care claims + Expenses for activities that improve health care quality) /
(Premiums – Federal and state taxes and licensing or regulatory fees
Some components of the PPACA MLR requirements may mitigate the implications of some of these variations. The insurers GAO interviewed said their PPACA MLRs will be affected by changes in the MLR formula and their ability to provide more precise data in 2011 and beyond. Most of these insurers reported that the deduction of taxes and fees in the PPACA MLR formula would contribute to the largest change in their 2010 MLRs.
Including expenses for activities to improve health care quality was also cited as a factor affecting insurers’ MLRs but to a lesser extent. In addition, because insurers had limited time to respond to HHS’s interim final rule on PPACA MLRs, which was published in late 2010, they said that their 2010 MLRs were based in part on best estimates. Insurers said they expect their ability to provide more precise PPACA MLR data will improve in 2011 and beyond.
Study findings
- Most of the insurers were reducing brokers’ commissions and making adjustments to premiums, as well as making changes to other business practices, in response to the PPACA MLR requirements.
- Almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs. Insurers varied on how the PPACA MLR requirements might affect their decisions to implement activities to improve health care quality.
- From 2006 through 2009, traditional MLRs on average generally exceeded PPACA MLR standards.
- Large Group market MLR
- 2006 – 84.9%
- 2007 – 87.3%
- 2008 – 87.3 %
- 2009 – 88.8%
In commenting on a draft of this report, the Department of Health and Human Services (HHS) said that the MLR provision will increase transparency in the insurance market and value for consumers’ premiums.
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