During its first two years, the Patient Protection and Affordable Care Act's medical loss ratio provision produced more than $3 billion in consumer benefits, in the form of reduced overhead and rebates, according to a report from The Commonwealth Fund.
Commonwealth Fund researchers analyzed data from CMS and found health insurers paid out approximately $1.5 billion in rebates to consumers in 2011 and 2012 for failing to comply with the PPACA medical loss ratio provision. Additionally, insurers reduced administrative costs and profits by $1.75 billion, in part to reduce the rebates they might be required to distribute.
The medical loss ratio shows the percentage of premium dollars an insurer spends on medical care and quality improvement expenses, minus what the company spends on overhead (profits, administrative costs and sales expenses). To cut the cost of insurance to consumers and the government, since 2011, the PPACA has required health insurers to maintain a minimum medical loss ratio of 80 percent in the individual and small group markets and 85 percent in the large group market. Health insurers that spend less than those percentages on quality improvement and medical care must pay the difference in the form of rebates to their members.
For the first year the medical loss ratio provision was in effect, insurers that failed to maintain the minimum ratio paid out more than $1 billion in rebates. That amount dropped to $513 million in the second year, indicating greater compliance. Insurers also reduced overhead costs by $350 million the first year and $1.4 billion the second. However, spending on quality improvement remained low, at less than 1 percent of premium revenues for both years.
Additionally, during the same time period, there was a "modest contraction" in the number of active insurers with 1,000 or more members in a market segment, but a "substantial number" of insurers remained actively competing, according to the report. Between 2011 and 2012, the number of health insurers in the individual and small-group markets declined 11 percent and 6 percent, respectively. It's also important to note that the number of insurers has declined steadily for more than a decade as the industry consolidates, according to the report.
"On balance, federal regulation of MLRs appears to be producing significant consumer benefits without causing any substantial harm to the insurance market," the report concludes.
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