One of the most significant and impactful changes contained in the 2010 Patient Protection and Affordable Care Act (PPACA), requires health insurance companies to meet minimum medical loss ratio (MLR) targets of 80% for small group and individual plans and 85% for large group plans. Pre-PPACA, the average, large health plan spent between 18 and 21 cents on administrative costs. Post-PPACA, spending 85 cents of every dollar on medical and quality leaves 15 cents for administrative costs.
As of July 2012, insurance companies that do not meet the MLR standard must provide rebates to their consumers. These requirements drastically change the risk for all insurers, because the chief cause of deviations from targeted or expected profit margins in health insurance is the effect of unexpected fluctuations in health claim cost trends.
A total of $1.1 billion was returned to the purchasers of 12,760,267 insurance policies, which fell below the 80/20 or 85/15 thresholds.
Stay tune as we share with you how insurers adjust to major upward shifts in future claims costs given the MLR requirements and reduce administrative costs to the required thresholds.
Source:
CMS/HHS The 80/20 Rule: Providing Value & Rebates to Consumers – Appendix II Release of June 21, 2012.