QUESTION: What is the Medical Loss Ratio provision and what does it require?
ANSWER: The Medical Loss Ratio (or MLR) requirement of the Affordable Care Act (ACA) limits the portion of premium dollars health insurers may use for administration, marketing, and profits. Under the ACA, health insurers must publicly report the portion of premium dollars spent on health care and quality improvement and other activities in each state in which they operate.
The Medical Loss Ratio provision requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on health care claims and quality improvement, leaving the remaining 20% for administration, marketing, and profit. The MLR threshold is higher for large group insured plans, which must spend at least 85% of premium dollars on health care and quality improvement. Insurers failing to meet the applicable MLR standard have been required to pay rebates to consumers since 2012 (based on their 2011 experience). Insurers may either issue rebates in the form of a premium credit or a check payment and, in the case of people with employer coverage, the rebate may be shared between the employer and the employee. Insurers have until September 30 to begin issuing rebates this year. Rebates issued in 2019 will go to subscribers who were enrolled in rebate-eligible plans in 2018.
Using data reported by insurers to CMS, estimates are that insurers will be issuing a total of at least $1.3 billion across all markets in 2019 – exceeding the previous record high of $1.1 billion in 2012 (based on 2011 experience). The amount varies by market, with insurers reporting at least $743 million in the individual market, $250 million in the small group market, and $284 million in the large group market.