Insurers' Responses to Regulation of Medical Loss Ratios

December 5, 2012 | Volume 26

Authors: Michael J. McCue and Mark A. Hall
Contact: Michael J. McCue, D.B.A., Professor, Department of Health Administration, School of Allied Health Professions, Virginia Commonwealth University, mccue@vcu.edu
Editor: Martha Hostetter

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Overview

The Affordable Care Act’s medical loss ratio (MLR) rule requires health insurers to pay out at least 80 percent of premiums for medical claims and quality improvement, as opposed to administrative costs and profits. This issue brief examines whether insurers have reduced administrative costs and profit margins in response to the new MLR rule. In 2011, the first year under the rule, insurers reduced administrative costs nationally, with the greatest decrease—over $785 million—occurring in the large-group market. Small-group and individual markets decreased their administrative costs by about $200 million each. In the individual market, insurers passed these savings on to consumers by reducing their profits even more than administrative costs. But in the large- and small-group markets, lower administrative costs were offset by increased profits of a similar amount. Stronger measures may be needed if consumers are to benefit from reduced overhead costs in the group insurance markets.

Citation

M. J. McCue and M. A. Hall, Insurers' Responses to Regulation of Medical Loss Ratios, The Commonwealth Fund, December 2012.