Health insurance consumers received roughly $1.5 billion in insurer rebates and cost savings last year though the health reform law's medical loss ratio, but many health insurers boosted their own profitability as well, according to a study from The Commonwealth Fund (pdf).
Under the Patient Protection and Affordable Care Act, the medical loss ratio establishes that health insurers must spend at least 80 percent (for individual and small group markets) or 85 percent (for large group markets) of premiums on medical care instead of profit, marketing and other administrative costs. Insurers that don't meet those requirements must rebate the difference to their members.
The report said consumers in the individual market "benefited substantially" under the MLR, receiving $394 million in overhead and rebate. Those in the small-group and large-group markets did not benefit as much and, rather, it was health insurers that boosted profit.
From 2010 to 2011, small-group health insurers reduced administrative costs by $190.3 million due to the MLR, and large-group health insurers cut administrative costs by $785.3 million. However, those insurers also increased operating profit by $226 million and $959 million, respectively.
Although insurers stayed within the bounds of the MLR, those in the small- and large-group markets did not improve their MLR year-over-year. The MLR for small-group insurers remained constant at 83.6 percent, while the MLR for large-group insurers only increased 0.1 percent to 89.2 percent. Researchers said this indicated some insurers "failed to pass these cost savings on to consumers in the form of restrained premiums," especially for those in the small-group market.
Researchers concluded that although many consumers reaped benefits last year in the form of lower premiums and/or rebates, the MLR still has not cut completely into the overhead and administrative costs within the small- and large-group markets. "For that to occur," the report reads, "stronger measures may be needed, either in the form of rate regulation, tighter loss ratio rules or enhanced competitive pressures."
Under the Patient Protection and Affordable Care Act, the medical loss ratio establishes that health insurers must spend at least 80 percent (for individual and small group markets) or 85 percent (for large group markets) of premiums on medical care instead of profit, marketing and other administrative costs. Insurers that don't meet those requirements must rebate the difference to their members.
The report said consumers in the individual market "benefited substantially" under the MLR, receiving $394 million in overhead and rebate. Those in the small-group and large-group markets did not benefit as much and, rather, it was health insurers that boosted profit.
From 2010 to 2011, small-group health insurers reduced administrative costs by $190.3 million due to the MLR, and large-group health insurers cut administrative costs by $785.3 million. However, those insurers also increased operating profit by $226 million and $959 million, respectively.
Although insurers stayed within the bounds of the MLR, those in the small- and large-group markets did not improve their MLR year-over-year. The MLR for small-group insurers remained constant at 83.6 percent, while the MLR for large-group insurers only increased 0.1 percent to 89.2 percent. Researchers said this indicated some insurers "failed to pass these cost savings on to consumers in the form of restrained premiums," especially for those in the small-group market.
Researchers concluded that although many consumers reaped benefits last year in the form of lower premiums and/or rebates, the MLR still has not cut completely into the overhead and administrative costs within the small- and large-group markets. "For that to occur," the report reads, "stronger measures may be needed, either in the form of rate regulation, tighter loss ratio rules or enhanced competitive pressures."
More Articles on the Medical Loss Ratio:
House Bill Would Amend Medical Loss Ratio
HHS: PPACA Saved Consumers $2.1B in Health Premiums
Health Insurers to Dispense $1.1B in Rebates This Summer