By Kathryn Mayer
Consumers saw nearly $1.5 billion in insurer rebates and overhead cost savings in 2011 due to health reform’s medical loss ratio
provision, according to a Commonwealth Fund study.
The MLR provision of the Patient Protection and Affordable Care Act requires that health insurers selling plans to individual consumers spend at least 80 percent of the premiums they collect on medical care. The report says that consumers with individual policies saw substantially reduced premiums when insurers reduced both administrative costs and profits to meet the new standards.
“The medical loss ratio requirements are intended to give insurers an incentive to be more efficient and use most of their premium dollars for patient care,” says Sara Collins, Commonwealth Fund vice president for affordable health insurance. Collins says though that while the report is encouraging, it’s crucial to “monitor insurers’ responses to this regulation over time to ensure that all purchasers and consumers benefit from the savings the law is designed to encourage.”
Report authors say improvements in the individual insurance market were widespread: 39 states saw administrative costs drop, 37 states saw medical loss ratios
improve, and 34 states saw reductions in operating profits.
But the report found that in small- and large-group markets, medical loss ratios were largely unchanged, and while spending on administrative costs dropped, profits increased. In the small-group market, for instance, administrative costs were reduced by $190 million, profits increased by $226 million, and the medical loss ratio remained at 83 percent, unchanged from 2010.
The authors conclude that stronger measures—like rate regulation, tighter loss ratio rules, or enhanced competitive pressures—may be needed to ensure that these administrative costs are reduced in all markets and savings are passed along to consumers.
Originally published on BenefitsPro.com