On the medical loss ratio (MLR) and sticky selling general and administrative costs: Evidence from health insurers

2019 ◽  
Vol 38 (1) ◽  
pp. 53-61 ◽  
Author(s):  
Hambisa Belina ◽  
Krishnamurthy Surysekar ◽  
Miriam Weismann
Keyword(s):  
Loss Ratio ◽  
Administrative Costs ◽  
Medical Loss Ratio ◽  
Health Insurers

scholarly journals Do Health Insurers Manage Their Medical Loss Ratios? At What Cost?

2021 ◽  
Vol 40 ◽  
Author(s):  
Elizabeth Plummer ◽  
William F. Wempe
Keyword(s):  
Health Plans ◽  
Loss Ratio ◽  
Level Data ◽  
Medical Loss Ratio ◽  
Health Insurers

We use plan-level data to examine a reporting incentive unique to health insurers—the federal Affordable Care Act’s (ACA’s) Medical Loss Ratio (MLR) provisions—which require that health plans spend a specified percentage of premiums on claims or else pay policyholder rebates. While there are no penalties for noncompliance with the MLR provisions, incentives for insurers to comply include avoiding political and reputation costs, reducing administrative burdens, and eliminating rebate payments. We find that health plans with pre-managed MLRs— i.e., the MLRs that would be reported without reporting discretion—below the required MLR overstate claims, thereby increasing their MLRs and reducing or eliminating rebate payments. Overall, results suggest that overstating claims reduced rebate payments by approximately $190 million to $325 million for 20112013; i.e., about 10–17% of total rebates actually paid. We also find that plans with pre-managed MLRs significantly greater than the minimum required MLR understate claims, thereby improving plan earnings while still complying with the MLR provisions. These understatements average between 14–34% of plans’ pre-tax earnings.

Early Experience of Financial Performance and Solvency of Medicaid-Focused Insurers Under ACA Expansion

2016 ◽  
Vol 74 (6) ◽  
pp. 750-762 ◽  
Author(s):  
Michael J. McCue
Keyword(s):  
Financial Performance ◽  
Affordable Care Act ◽  
First Year ◽  
State Health ◽  
Medicaid Coverage ◽  
Administrative Costs ◽  
Operating Profit ◽  
Solvency Ratio ◽  
Medical Loss Ratio ◽  
Health Insurers

To allow for greater coverage of the uninsured, the Affordable Care Act expanded Medicaid coverage in 2014. Accessing financial data of state health insurers from the National Association of Insurance Commissioners, this data trend study compares the financial performance and solvency of Medicaid-focused health insurers prior to and after the first year expansion of Medicaid coverage. After the first year of Medicaid expansion, there was a significant increase in operating profit margin ratio for Medicaid-focused health insurers within expansion states. Lower medical loss ratio as well as no change in administrative costs contributed to this profitable position. The risk-based capital ratio for solvency increased significantly for health insurers in nonexpansion states while there was no change in this ratio for health insurers in expansion states. Conversely, the other important solvency ratio of cash flow margin increased significantly for health insurers in expansion states but not for insurers in nonexpansion states.

scholarly journals Regulating Markups in US Health Insurance

2019 ◽  
Vol 11 (4) ◽  
pp. 71-104 ◽  
Author(s):  
Steve Cicala ◽  
Ethan M. J. Lieber ◽  
Victoria Marone
Keyword(s):  
Health Insurance ◽  
Affordable Care Act ◽  
Natural Experiment ◽  
Loss Ratio ◽  
Profit Margins ◽  
Medical Claims ◽  
Commercial Markets ◽  
Individual Market ◽  
The Individual ◽  
Medical Loss Ratio

A health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims, or the inverse markup over average claims cost. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7 percent in the individual market and 2 percent in the group market. Premiums were unaffected. (JEL G22, H51, I13, I18)

Financial Performance of Health Insurers: State-Run Versus Federal-Run Exchanges

2017 ◽  
Vol 75 (3) ◽  
pp. 384-393 ◽  
Author(s):  
Mark A. Hall ◽  
Michael J. McCue ◽  
Jennifer R. Palazzolo
Keyword(s):  
Financial Performance ◽  
Affordable Care Act ◽  
First Year ◽  
Policy Makers ◽  
Administrative Costs ◽  
Individual Market ◽  
The Difference ◽  
The Individual ◽  
Financial Losses ◽  
Health Insurers

Many insurers incurred financial losses in individual markets for health insurance during 2014, the first year of Affordable Care Act mandated changes. This analysis looks at key financial ratios of insurers to compare profitability in 2014 and 2013, identify factors driving financial performance, and contrast the financial performance of health insurers operating in state-run exchanges versus the federal exchange. Overall, the median loss of sampled insurers was −3.9%, no greater than their loss in 2013. Reduced administrative costs offset increases in medical losses. Insurers performed better in states with state-run exchanges than insurers in states using the federal exchange in 2014. Medical loss ratios are the underlying driver more than administrative costs in the difference in performance between states with federal versus state-run exchanges. Policy makers looking to improve the financial performance of the individual market should focus on features that differentiate the markets associated with state-run versus federal exchanges.

Preemption and the MLR Provision of the Affordable Care Act

2014 ◽  
Vol 40 (2-3) ◽  
pp. 280-297
Author(s):  
Jeffrey Hoffmann
Keyword(s):  
United States ◽  
Health Insurance ◽  
Affordable Care Act ◽  
The United States ◽  
Insurance Companies ◽  
United States Department ◽  
Loss Ratio ◽  
Department Of Health ◽  
Outstanding Question ◽  
Medical Loss Ratio

This Note focuses on the medical loss ratio provision (“MLR Provision”) of the Patient Protection and Affordable Care Act (ACA). The MLR Provision states that health insurance companies must spend at least a certain percentage of their premium revenue on “activities that improve healthcare quality” (in other words, meet a minimum threshold medical loss ratio) and comply with reporting requirements determined by the Secretary of the United States Department of Health and Human Services (HHS). Because states have historically had authority over the regulation of health insurance, there is an outstanding question as to whether or not the MLR Provision has legal authority to preempt conflicting state MLR regulations.Part II of this Note outlines the major requirements in the MLR Provision and discusses the history of MLR regulation in the United States. Part III discusses the likelihood that the courts will soon resolve the question of preemption regarding the MLR Provision.

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