Their Loss Is Our Gain

Say what you will about the shortcomings of the ACA,  but the healthcare reform has already proven to lower costs. One catalyst for this cost savings has been the change to the medical loss ratio (MLR).

Consumers pay a monthly premium to health insurers, who then use those funds to pay for health care claims, administer coverage, market products, and earn profits for investors. Under the ACA, the new MLR provision requires insurance companies to spend 80-85% of premium dollars on actual medical care and quality improvement (up from the average 70-77% spent on on these prior to the new law). Therefore, no more than 15-20% of those premiums can go toward administrative costs.  This means that insurance companies have been forced to increase efficiency and give consumers more bang for their buck.

There are two ways that consumers have realized cost savings due to the MLR standard: (1) lower premiums, and (2) consumer rebates.  Insurers are required to set consumer premium rates at a level where they would be paying out the minimally acceptable share of premiums back as benefits.  This has already resulted in lower consumer premiums across the board.  If, however, insurers spend less than the required amount on health care and quality improvements (that is, less than the required 80-85%), insurance companies must issue consumers a rebate.  Last year, alone, over 13 million consumers received $1.1 billion in rebates (about $151 per consumer)!



Of course, the federal government made adjustments on a state-by-state basis if it was determined that the 80% MLR standard could destabilize the state's individual insurance market. Although these adjustments dipped as low as 65% in some states, all states are expected to reach 80% by 2014.

For more information, see the Kaiser Family Foundation Fact-Sheet explaining the MLR requirements.