Last week the Department of Health and Human Services issued its final rule for the medical loss ratio (MLR) in the Patient Protection and Affordable Care Act. The response was surprisingly reserved considering that the much-maligned MLR ranks second only to the Independent Payment Advisory Board as a flashpoint for Congress, where hearings have focused on potential economic chaos created by MLR.
There was none of the anticipated rage from health plans, which are now required to spend 80% to 85% of their premium dollars on enrollee medical care. The National Association of Insurance Commissioners seemed content to just thank HHS for including most of its recommendations.
Even insurance brokers and insurance agents, who have bitterly complained in congressional hearings that the MLR requirement will cost them their livelihood, provided a somewhat restrained response.
So what gives? I think it was the timely release of a General Accounting Office report that contains some unexpected news: At least 64% of all healthcare insurers in 2010 would have met or exceeded the 2011 MLR requirements contained in PPACA. Hmmm. Seems like there may not be that much to complain about, at least in terms of hitting the numbers.
The success rate is even higher when only insurers in the large and small group markets are considered: 70% and 77%, respectively, would have met the standard. Individual plans will have a tougher time?only 43% hit the PPACA requirement.
The report is based on preliminary MLR data submitted to NAIC in April 2010. It covers almost 1,800 insurers and more than 67 million lives. It seems to kick a few holes in the argument that the MLR requirement will undermine the very fabric of the healthcare industry.
What is lost amid much of the MLR rhetoric is that PPACA expands the MLR definition to include not only clinical services but also expenses associated with improving healthcare quality. That means programs like case management for chronic diseases, care coordination, and even the IT necessary to support the programs can be counted in the loss ratio.
Quality initiatives such as efforts to reduce medical errors and increase patient safety can also be counted in the new MLR formula. Also included are certain federal and state taxes, licensing, and regulatory fees paid by health insurers.
It looks as if HHS designed the MLR to help achieve the vaunted triple aim of healthcare: better care, better health, and lower cost!
According to the GAO report, the inclusion of these extra items will "generally increase insurers' MLRs." Using the PPACA formula results in MLRs that were between 4.8 and 7.5 percentage points higher than ratios based on the traditional formula. Insurers credit the tax breaks as the biggest factor in helping punch up the MLR.
Health insurers have been busy adjusting their company operations to reflect the new MLR reality. A July 2011 report issued by the GAO looked at the early experiences of health insurers as they began to implement the new requirements. Just as HHS hoped would happen, health insurers have been taking a hard look at their quality programs?although the actions insurers decide to take may not always reflect HHS's intentions.
According to the report, some insurers may reduce their expenses on activities that
HHS does not consider quality improvement activities in the PPACA MLR formula, such as retrospective utilization review (a review of a patient's records after the medical treatment has occurred) and preauthorization for inpatient admissions. But others are adding new quality programs and beefing up the ones that meet HHS guidelines to increase their MLRs.
And get this—some insurers said they reduced premiums in 2012. That move is partly in response to the PPACA MLR requirements but also includes other MLR-lowering strategies, such as smaller physician networks and lower commissions for insurance brokers and agents.
Of course that's not good news for brokers and agents. The National Association of Health Underwriters lobbied hard to get HHS to exclude broker and agent fees from MLR administrative cost calculations, but HHS declined to make the change in the final rules.
While it's true that some insurers are exiting markets and discontinuing some products, the overall message of the GAO reports is that whether they like the new rules or not, most health insurers are making the necessary adjustments to meet the new MLR requirements.
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
