In it, but not of it. TPM DC
The medical-loss-ratio requirement mandates that insurance companies spend at least 80 percent of premiums on actual health benefits. It is one of the various provisions intended to help shape the behavior of insurance companies, making the market more efficient and cost-effective for consumers. Administrative costs are kept down, meaning that more of people's money is going to real care.
"The medical loss ratio requirement and rate review mandated by the ACA put downward pressure on premium growth," officials from the federal Centers for Medicare and Medicaid Services wrote in their report. Overall private insurance spending, of which premiums are a part, grew at a 2.8-percent rate -- the lowest since at least 2007.
As Larry Levitt, vice president at the non-partisan Kaiser Family Foundation, put it to TPM in an email: "That is how it's intended to work."
If insurers don't meet the MLR requirement, then insurers must pay a rebate to their customers. But the intention was that it would drive premiums down, to the level needed to cover actual care. The rebates were just a means of enforcing it, and the companies seem to be responding.
"This requirement put downward pressure on premiums annually by encouraging plans to lower the net cost of insurance (the difference between premiums and benefits) or all non-benefit spending," Micah Hartman, a CMS actuary who helped write the new report, told TPM in an email. "The net cost of insurance includes all spending for administrative costs as well as taxes and underwriting gains and losses."
It is one of the law's provisions meant to bring health care costs under control, and the findings from last week's report suggests that it is working -- even more than some top policy wonks like Levitt anticipated.
"I think it has had a substantial downward effect on premium growth, frankly more than I expected when the health law passed," Levitt said. A year ago, the group examined MLR's effect and estimated that consumers collectively saved as much as $2.8 billion in premiums in 2011 and 2012.
The CMS officials did not attempt to quantify MLR's impact in 2013, Hartman said, "because the ACA has been in effect since 2010 and it has become increasingly difficult to estimate what health care spending would have been in 2013 absent the ACA."
But last year looks like a continuation of the trend. Hartman said that insurers have started to build the MLR provision into their premiums, driving them down, rather than have to pay rebates to consumers for not meeting the requirement.
"It’s more competitive for plans to build reduced cost structures into their premiums rather than rebating amounts after the fact," he explained.
The latest findings reflect a real and intended change in insurers' behavior, Levitt said, though the MLR has, like most of the law, been subjected to repeal bills from House Republicans.
"Initially, insurers gave consumers rebates because many of them didn’t meet the medical loss ratio thresholds," Levitt said. "But, then they started to get the message and just keep premiums down to begin with."