MLR Rule a Baby Step Toward Spending Reductions

Christopher Cheney, August 13, 2014

The medical loss ratio, also known as the 80/20 rule, is trimming spending by payers. But the fate of the nation's drive to cut healthcare costs rests in the hands of the biggest spenders—providers.

Are healthcare payers parasites or purveyors of value?

As the nation struggles to rein in healthcare spending, which federal officials pegged at $2.8 trillion in 2012, payers and providers have been subjected to intense pressure to boost efficiency and reduce waste. The necessity to take action is undeniable: The share of the economy devoted to healthcare spending is about 17 percent and it is threatening to crowd out other essential goods and services.

One step in the monumental journey toward healthcare cost control is the Medical Loss Ratio law under the federal Patient Protection and Affordable Care Act. Also known as the 80/20 Rule, the MLR requires insurers to spend at least 80 percent of every premium dollar on patient care. Insurers that fail to meet the 80/20 Rule standards are required to pay refunds to health plan members.

In 2012, health plan members gained from upfront premium reductions estimated at $3.4 billion and $500 million in rebates. Last year alone, the 80/20 Rule saved consumers $3.8 billion up front on their premiums as insurance companies operated more efficiently.

Christopher Cheney

Christopher Cheney is the senior finance editor at HealthLeaders Media.


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