Study Finds Medical-Loss Ratio Provision Saved Consumers $1.5B in 2011

Consumers saved nearly $1.5 billion in 2011 under the Affordable Care Act's medical-loss ratio provision, according to a study released Wednesday by the Commonwealth Fund, the Los Angeles Times reports (Levey, Los Angeles Times, 12/5).

Under the MLR provision, private insurers must spend at least 80% in the individual market, or 85% in the group market, of premium dollars on direct medical costs. Insurers that do not comply with the ratio must issue rebates to consumers (California Healthline, 10/25).

Study Findings

The study -- which was based on financial reports that insurers file with the National Association of Insurance Commissioners -- found that $1.1 billion of the savings came in the form of rebates (Los Angeles Times, 12/5). The study also found that consumers in the individual insurance market saw "substantially reduced premiums" (Daly, Modern Healthcare, 12/5).

In the individual market, the study found that:

• Administrative costs declined in 39 states, with major improvements in Delaware, Louisiana, Ohio, New York and South Carolina;
• Insurers in 37 states spent more of their customers' premiums on medical care, with large gains in Missouri, New Mexico, South Carolina, Texas and West Virginia;
• Premium growth slowed, increasing by about 6% on average between 2010 and 2011 (Los Angeles Times, 12/5); and
• Operating profits declined in 34 states.

The MLR provision had less of an effect in the small- and large-group markets, in which some insurers pocket savings from lower administrative expenses. In the small-group market, administrative costs were reduced by $190 million and profits increased by $226 million, while the MLR remained at 83% -- the same level as in 2010. In the large-group market, insurers reduced administrative costs by $785 million and increased profits by $959 million, while keeping their MLRs at 89% -- also unchanged from 2010 (Modern Healthcare, 12/5).

The study concluded that stronger rate regulation, tighter MLR rules or stronger competitive measures are required to ensure that health insurers pass along savings to consumers while reducing administrative costs (McGlade, CQ HealthBeat, 12/5).

Commonwealth Fund Vice President Sara Collins said, "It will be crucial to monitor insurers' responses to this regulation over time to ensure that all purchasers and consumers benefit from the savings the law is designed to encourage" (Los Angeles Times, 12/5).

Health Insurer Reaction

Health insurers noted that they could have used the $1.5 billion for anti-fraud measures and quality improvement programs.

Robert Zirkelbach, a spokesperson for America's Health Insurance Plans, said, "Penalizing health plans for investing in these types of initiatives is the wrong approach," adding, "All participants in the health care system should be incentivized to continually innovate and develop new ways to improve care for patients and lower health care costs" (Modern Healthcare, 12/5).