Prior to 2011, there was no rule that required insurers to provide enrollees with a specified minimum value in health spending in return for each dollar spent on premiums. However, thanks to the medical loss ratio (MLR) mandate, insurers began using a much higher percentage of premiums on actual health spending, according to a new Robert Wood Johnson Foundation (RWJF) report.
The report, which drew analysis from MLR data submitted by insurers to the National Association of Insurance Commissioners from 2010 to 2012, discussed the changes in claims expenses versus premiums and whether MLR shifts came from administrative costs rather than operating costs.
The RWJF found that MLRs increased significantly in the individual market during the specified timeframe. These changes were most notable among insurers with net MLRs of less than 80 percent in 2010 that raised their net MLR above 80 percent by 2011.
Additionally, individual market insurers increased their MLRs from before the provision took effect to 2012 by raising claims payments higher than they increased premiums. It's possible, as the report mentioned, that insurers increased claims by covering a wider range of benefits, picking up a great share of the cost of benefits or by issuing higher payments to providers.
Thanks to the MLR rule, individual market insurers were able to lower their administrative costs from 19.9 percent of premiums in 2010 to 17.6 percent of premiums in 2012
MLRs also increased in the small-group market, albeit modestly, most likely because insurers already were closer to the Affordable Care Act's requirement of an 80 percent MLR for the small-group market.
While insurers have been quick to lash out against the MLR rule, claiming that the provision would lead to less competition and force private insurers out of the market, the report concluded that these disruptions did not occur.
The report comes amid a recent Commonwealth Fund paper that found insurer compliance with the MLR rule increased significantly by 2013, with rebates tied to MLR non-compliance dropping to $325 million, FierceHealthPayer previously reported.
- here's the RWJF report