In 2011, the Affordable Care Act began regulating health insurers' medical loss ratio (MLR) to reduce the overall cost of insurance and give consumers rebates if plans did not comply. During the rule's first year, insurers paid $1 billion to consumers, according to recent research from the Commonwealth Fund. Rebates dropped to $325 million in 2013, demonstrating an increase in insurer compliance with the MLR rule.
Additionally, insurers reduced their administrative costs without increasing their profits and produced a net reduction in overhead that amounted to more than $3 billion over the first three years. Here are some other key points of the research:
Number of health plans. Nearly 500 insurers participated in each of the individual, small-group and large-group markets in 2013. These numbers were down slightly from 2011. However, insurer participation has been declining for more than a decade, the report said--meaning, the number of insurers does not appear to be related to the ACA.
Drop in rebates. From 2011 to 2013, the amount of total rebates that insurers paid to consumers dropped by more than two-thirds. This jump, in part, is thanks to a decline in the average size of rebates owed in the group markets, which itself reflects better compliance with the MLR. Under the ACA, individual and small-group plans must have an MLR of 80 percent; the figure is 85 percent for large-group plans.
Financial performance. Between 2010 and 2011, insurer's non-medical overhead dropped by about $350 million. The change in non-medical overhead enabled consumers to reap benefits. For instance, between 2011 and 2012, the drop of just 0.5 percent amounted to a consumer gain of about $2 billion.
Administrative costs. Many believe that increasing MLRs will cause insurers to reduce the role of independent brokers, the report said. Yet broker expenses, which amount to 3 percent of premiums, have dropped only 0.2 percentage points overall since 2011.
"Federal regulation of MLRs appears to be producing significant consumer benefits without causing any substantial harm to the insurance markets," The Commonwealth Fund concluded, adding, "this was achieved without a great exodus of insurers from the market."
Despite greater compliance with the MLR rule, insurers still push to change the requirements. For instance, the industry wants payments to brokers and agents excluded from administrative costs, claiming that their inclusion in MLR calculations hurts insurers' bottom lines and drives up premiums, FierceHealthPayer previously reported.
- here's the Commonwealth Fund research