Insurers avert $2B medical-loss ratio provision

Insurers should thank their lucky stars that the reform law's medical-loss ratio (MLR) provision wasn't implemented in 2010. If it was in effect, they would have rebated almost $2 billion to consumers, according to a Commonwealth Fund study published Thursday.

The $2 billion in consumer rebates would have been almost evenly split between the individual and group markets. Insurers in Texas and Florida would have provided the highest rebates in the individual market, paying back $172 million and $109 million, respectively. For the large group market, insurers in Maryland, Florida and Texas would have paid out more than $40 million in rebates last year, The Hill's Healthwatch reported.

"These 'what-if' estimates provide a rough prediction of the impact the MLR rules may have on their first year of application--either by way of requiring rebates or by motivating insurers to reduce rates in order to avoid rebates," the study said.

Since the MLR provision requires insurers rebate consumers if they don't spend at least 80 percent of premiums on medical costs, the study's findings provide clear evidence that private insurers are spending a significant amount on administrative costs, reported Kaiser Health News. "It's an indication that there is waste in the system that can be reduced," said Commonwealth Fund Economist Sara Collins.

But industry officials challenged the study's suggestion that insurance profits and administrative costs are the primary driver behind rising health insurance premiums, reported the Arizona Republic. "Medical claims are the real driver of costs," said Robert Zirkelbach, press secretary for America's Health Insurance Plans. "There are a number of provisions that will result in premiums increasing far more than the value of these potential rebates," he said.

To learn more:
- read the Commonwealth Fund study (.pdf)
- read the Arizona Republic article
- see the Kaiser Health News article
- check out The Hill's Healthwatch article