The Government Accountability Office gave a fairly glowing report about the efect of the federal medical loss ratio, a policy inserted into the Affordable Care Act by Sen. Al Franken (D-MN) that forces insurance companies to spend 80-85% of their premiums (depending on the type of coverage) on medical treatment, and to rebate customers if they fall short of that ratio. After rulewriting, the MLR in place includes expenses for activities that improve health care quality as treatment, and excludes federal and state taxes and licensing fees paid by insurance companies from the total pot of premiums. Even then, insurance companies interviewed by GAO were eliminating some of the middleman waste in the system to get under the ratio, premium money that wasn’t doing anything for real people. Insurers are also lowering premiums as a result. And for the most part, the MLR wasn’t stopping insurance companies from doing business. (The PPACA refers to the Patient Protection and Affordable Care Act in the below excerpt.)
Most of the insurers GAO interviewed 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. While one insurer said that their decision to implement new activities would be affected by whether or not an activity could be included as a quality improvement activity in the PPACA MLR formula, other insurers said that the PPACA MLR requirements are not a factor in such decisions. Insurers also differed on how the PPACA MLR requirement may affect where they do business. One insurer said that they have considered exiting the individual market in some states in which they did not expect to meet the PPACA MLR requirements, while several other insurers said that the PPACA MLR requirements will not affect where they do business.
I’m guessing that you wouldn’t see any insurers exit the individual market if the MLR were applied uniformly across the country. That was the design of the rule, but the Department of Health and Human Services has provided waivers to several states, allowing them to opt out of the MLR requirements. HHS did deny an MLR waiver for North Dakota recently, but Iowa, Kentucky, Maine, Nevada and New Hampshire have all been approved, with more applications in process. These are supposed to be temporary bridge waivers to get to 2014, when all states will have to abide by the same MLR.
The point is that the MLR is completely workable for the insurance companies, they just have to pay their middlemen a little less. Consumers see the difference in premiums that are lower than they would be.
It’s clear that nobody understands the health care law, and that lots of education has to be done to achieve success. On this narrow point, however, the MLR does seem to be working in the background to make insurance just a bit better.