News Feature | July 30, 2014

Medical-Loss Ratio Led To Refund Totaling $332 Million In 2013

Christine Kern

By Christine Kern, contributing writer

Medical Loss Ratio

Healthcare law will return to families an average refund of $80 each this year.

A federal rule requiring health insurers to spend a minimum percentage of premium dollars on medical care led to more than $332 million in rebates last year, according to HHS. The Obama Administration says that the figure, which is much lower than in the previous two years, reflects that insurers charged lower rates so they would clear the threshold.

According to an HHS report, the rule saved consumers a total of $4.1 billion in 2013. The rebates issued under the medical-loss ratio provision of the ACA totaled $504 million in 2012 and $1.1 billion in 2011.

Intended to stem large spending on administrative costs and dividends for shareholders, the MLR provision mandates insurers issue refunds to customers if they spend less than 80 percent of the premiums they collect for plans sold on the individual and small group markets and less than 85 percent of plan premiums in the large group market on medical care. The remaining 15 to 20 percent can be used as profits or for CEO bonuses and administrative costs.

“We are continuing our work on building a sustainable long-term system, and provisions such as the 80/20 rule are providing Americans with immediate savings and helping to bring transparency and accountability to the insurance market over the long term,” HHS Secretary Sylvia Burwell said in a release.

 

The report shows that since the rule took effect, more insurers year over year are meeting the 80/20 standard by spending more of the premium dollars they collect on patient care and quality, and not red tape and bonuses.

If an insurer did not spend enough premium dollars on patient care and quality improvement, they must pay refunds to consumers in one of the following ways:

  • a refund check in the mail;
  • a lump-sum reimbursement to the same account that was used to pay the premium;
  • a reduction in their future premiums; or
  • if the consumer bought insurance through their employer, their employer must provide one of the above options, or apply the refund in another manner that benefits its employees, such as more generous benefits.

The trade group America’s Health Insurance Plans has argued that the MLR rule excludes legitimate administrative costs such as fraud detection and does nothing to address the costs of healthcare services that drive premium rate increases.

The guidelines are still somewhat nebulous, particularly for premium dollars that go toward care-quality efforts. Julie Nelson, a healthcare director at consulting firm Berkeley Research Group told Modern Healthcare. Quality improvement activities for insurers generally include information technology investments, utilization reviews and other means that promote wellness or boost health outcomes – but those areas are broad.

“What’s unclear so far is the standards that are being applied to define the quality improvement expenditures,” Nielsen said.