The Medical Loss Ratio: Gain for Connecticut Consumers and Businesses

Come August, you might be one of the Connecticut residents getting some money back from your health insurer courtesy of the Affordable Care Act (ACA).

In the complex and opaque world of health insurance terminology, the medical loss ratio (MLR) has a unique meaning. The “loss” refers to money from health insurance premiums spent on health care and therefore not available to fund insurance company administrative expenses and profits. In other words, insurers “lose” when money is spent on taking care of people. An important regulation implemented under the ACA places limits on the amount of this “loss” and requires rebates to consumers if those limits are exceeded. Large group plans (currently defined as over 50 employees) are limited to an MLR of 85 percent; that means that all but 15 percent of premiums must be spent on health care.  For individual and small group plans, the MLR limit is 80 percent.

Now that the regulations are in full effect, it is time for insurers to pay up if they pocketed more than the 15 to 20 percent of premiums permitted under the law.

Nationally, based on preliminary estimates the rebates will mean well over $1 billion in rebates. In Connecticut, the rebates are predicted to be:

Market

Rebate Amount

Average Rebate

Per Enrollee

Individual

$ 6,360,345

$ 136.89

Small Group

$ 1,849,518

$   51.97

Large Group

$ 6,388,702

$   49.12

 

When the average rebate per person is considered, this is not an earth-shattering amount of money. But the impact of these rebates is much greater than the refunds themselves. Experts believe that the far more significant impact of the MLR limits is its influence on holding down insurance rate increases. As one well-known consumer advocate, Professor Timothy Jost of Washington and Lee University School of Law, said:

“The purpose isn’t to generate rebates, but to force insurers to align their premiums more closely with their (medical) claims costs. Each year, premium costs have gone up more than medical costs, so what the rule does is force insurers to be more efficient and, if they charge too much, to give some back.”

Another moderating influence on premiums is the rate review provision in the Affordable Care Act which requires additional justification for any rate increases of 10 percent or more. In Connecticut, the Department of Insurance has instituted two policies that promote greater transparency regarding insurance rates. One allows for the scheduling of rate hearings for rate increase requests of 15 percent or greater. The other requires that individuals and small employers be notified directly of any proposed rate increases and offers them information on how to submit comments.

Finally, the CT Partnership Plan is another state-based effort that targets the high cost of health insurance. Administered through the Office of the State Comptroller, the plan opens up the state employee health plan to non-state government entities including towns and boards of education.  During the planning phase, over 50 municipalities received quotes on their health insurance that provided a decrease from current rates; that number has likely increased as the program has rolled out and more towns have gotten their insurance quotes from the Comptroller’s office.  The legislation that initiated pooling for municipalities also allows for non-profit organizations to join the Partnership Plan, beginning in 2013. Legislation currently under consideration at the Connecticut General Assembly would expand that opportunity to small businesses.

As a recent study published by Universal Health Care Foundation shows, many small businesses cannot afford to offer insurance to their employees. While the efforts to slow or reverse insurance premium increases are not the only way to tackle the high cost of health care in our state, they are certainly important steps in the right direction.

Jill Zorn is the Senior Program Officer at Universal Health Care Foundation of Connecticut.

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