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Posted on January 10, 2013
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Health
Connections - Insurers' Responses to Regulation of Medical Loss Ratios
Although the Affordable Care Act's medical loss ratio rule requiring health insurers to pay at least 80 percent of premiums for medical claims and quality improvement — as opposed to administrative costs and profits — helps lower administrative costs, benefits to consumers have been limited, a report from the
Commonwealth Fund finds. According to Insurers' Responses to Regulation of Medical Loss Ratios (14 pages, PDF), insurers cut administrative costs by more than $785 million in the large-group market, $190 million in the small-group market, and $209 million in the individual market in 2011, the first year the rule was in effect. But while insurers in the individual market passed the savings on to consumers, in the large- and small-group markets administrative cost savings were offset by increased profits ($960 million and $226 million, respectively). Indeed, if consumers are to benefit from reduced overhead costs in group insurance markets, the report argues, stronger measures in the form of rate regulation, tighter loss ratio rules, and/or enhanced competition may be needed to encourage insurers to pass on more of their cost savings to consumers.
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