One of the provisions in the Patient Protection and Affordable Care Act (a.k.a ACA, a.k.a. Health Reform, a.k.a. Obamacare) is that it limits the profits of health insurance companies. The ACA imposes a minimum medical loss ratio (MLR) on all insurers. The MLR is the amount of money spent on covered person medical care divided by the total revenue received through premiums. There is some debate of what constitutes ‘medical care’ (e.g., do investments in electronic health records count as medical care?), but insurer profits certainly are non-medical.
The ACA requires health insurers in the individual and small group market to spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs. The corresponding figure for large groups is 85 percent. According to a recent Kaiser tracking poll, 60 percent of the public views the MLR concept favorably, although only 38 percent was aware that the provision is in the ACA. Insurance brokers may be getting squeezed for insurers to meet this amount.
Even though the MLR is a national law, it may not apply in your state. Why? Because many States are petitioning for a waiver. HHS is currently reviewing applications from six states: Florida, Kansas, Michigan, Texas, Oklahoma and North Carolina. According to The National Association of State Budget Officers, HHS has granted waivers to seven states: Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia and Wisconsin. The department has denied them to Delaware and North Dakota.
Why did these States receive waivers? For a variety of reasons, but one of the reasons is due to the fact that some states have a less competitive medical market. Maine, for instance, requested a MLR of 65%. The reason was that State only has two large commercial insurers, Anthem Blue Cross Blue Shield (with 49% of the market) and MEGA Life and Health Insurance Company (with 33% of the market). A public-private partnership, DirigoChoice, makes up most of the rest of the market. Three HMO’s have less than 1% of the market combined between them. To avoid the case where a large insurer would leave the market due to minimum MLR requirements and create a near monopoly, HHS decided to approve Maine’s request.
- Section 2718 of the Public Health Services Act implements the minimum medical loss ratio requirement.
The National Association of State Budget Officers