Report touts MLR savingsNews added by Benefits Pro on May 14, 2014

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By Kathryn Mayer

A new report touts the Patient Protection and Affordable Care Act’s medical loss ratio provision, saying it’s saved consumers more than $3 billion in 2011 and 2012.

Half of the amount was returned to consumers in rebates by carriers, a report out Tuesday from the Commonwealth Fund found. Carriers also reduced profits and spending on brokers’ fees, marketing and other administrative items to the tune of $1.4 billion.

Under the MLR rule, in effect since 2011 — and met with criticism from the insurance industry — carriers are required to spend 80 percent (for small-group and individual plans) or 85 percent (for large-group plans) of premiums on actual medical care and quality improvement activities.

The report said consumer rebates fell from $1 billion in 2011 to $513 million in 2012, indicating more carriers now are in compliance with the provision. Consumer rebates dropped most substantially in the large-group market, falling 71 percent, from $388 million in 2011 to $111 million in 2012, as plans came into compliance, according to the report. During the same period, rebates dropped 50 percent in the individual market and 30 percent in the small-group market.

Broker expenses, which amount to about 3 percent of premiums, fell by almost $300 million across all three markets in 2012, the report found.
Researchers examined carriers’ filings with the Centers for Medicare and Medicaid Services.

Commonwealth Fund President David Blumenthal said the MLR requirement “creates a higher-value insurance product for consumers” and ensures a substantial portion of their premium dollar pays for medical care, as opposed to administrative costs and profits.

“It also encourages insurers to improve the care their customers receive, by investing in initiatives that will help achieve better outcomes for patients,” Blumenthal said.

At the same time, the report said, the MLR rule hasn’t led to significantly reduced competition among carriers. The report said there were at least 500 carriers, each covering 1,000 or more lives, in each of the individual, small-group, and large-group markets in 2012 — “a small reduction from 2011, but in line with the way insurance markets have been consolidating over a number of years.”

“The Affordable Care Act has changed how health insurance is bought, sold, and managed and, on balance, those changes have produced substantial benefits for consumers without harming insurance markets,” said Michael McCue, a Virginia Commonwealth University researcher who was the lead author of the Commonwealth Fund report. “In its first two years, the MLR requirement contributed to a significant reduction in insurance administrative costs, a major source of health care cost growth in the United States.”

The report, though, like the MLR provision itself, garnered criticism from those in the industry.

Industry groups have argued that the impact of the MLR rules on agents and brokers has been damaging since many insurance carriers have significantly cut their agent compensation to comply with the regulations.

"Carriers have met much of their requirement for the MLR on the back of agents and brokers who provide year round assistance to their clients, a service worth much more to some who experience real claim problems or who have difficulty accessing their benefits because a service has been denied," said John Greene, vice president of congressional affairs at the National Association of Health Underwriters.

"While some see this provision as working, it has come at a steep price for hard working agents, who act as consumer advocates and advisors. By destabilizing the agent and broker commissions, the MLR provision puts many Americans at risk,” he said.

Industry experts also have warned the MLR rule could lead to accelerated consolidation of the health insurance industry, and stifling competition.

America’s Health Insurance Plans agreed with NAHU that the MLR requirement is doing nothing to help consumers.

“The medical loss ratio requirement does nothing to address the main drivers of health care costs and puts an arbitrary cap on what health plans spend on a variety of programs and services that improve the quality and safety of patient care,” said AHIP spokeswoman Clare Krusing. “Moreover, the health care reform law’s $100 billion health insurance tax will cause premium increases that exceed the value of prospective rebates.”

The Commonwealth research itself found carriers were still spending relatively little on initiatives that could improve quality of care. According to the report, spending on activities to improve patient care didn’t change year to year, reflecting less than 1 percent of premiums in both 2011 and 2012.

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