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Good News: Many Insurers Already Meet MLR Requirements

Margaret Dick Tocknell, for HealthLeaders Media, December 7, 2011

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.

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