Amid the ObamaCare Supreme Court decision watch, the Department of Health and Human Services announced the initial calculations of medical loss ratios (MLR) for the nation’s insurance companies. Under the Patient Protection and Affordable Care Act, insurers must spend at least 85% of their premium income on paying benefits (80% in the individual and small group markets.) If they spend a lower percentage, they must provide rebates to their customers. For employer plans, the rebates are split between the employers and employees based on the percentage of premiums paid by each. For individuals, the rebate goes to the policyholder. The rebates are to be paid prior to August 1, 2012, based on the 2011 results (of course subject to what the Supreme Court decides about the law as a whole.) The HHS announcement provides a state-by-state summary of the rebate amounts, for individual, small group and large employer plans.
The HHS announcement states that insurers who failed to meet the MLR standards will rebate more than $1.1 billion to 12.8 million policyholders, with an average return of $151 per household. HHS thus gives the total number of individuals affected, but calculates the average payment on a “per household” basis, so care must be taken to gain a clear understanding of the numbers. In addition, the numbers are not for all policyholders, but only for those in plans where the insurer failed the MLR test. Consumers Union, the parent of Consumer Reports, has a list of insurers by state and the amounts by which they exceeded the MLR limits. The list for Ohio is as follows:
- John Alden Life Ins Co: $380,135.00
- Time Ins Co: $409,486.00
- Humana Ins Co: $8,900.00
- Companion Life Ins Co: $1,062.00
- Mega Life & Hlth Ins Co The: $381,269.00
- Community Ins Co: $6,633,894.00
- Total: $7,814,746.00
Small Employer Market
- Trustmark Life Ins Co: $1,027,486.00
- John Alden Life Ins Co: $1,008,037.00
- Humana Ins Co: $77,670.00
- UnitedHealthcare Ins Co of the River: $700,208.00
- Humana Hlth Plan of OH Inc: $99,427.00
- Total: $2,912,828.00
The MLR test is one of the more controversial components of the Affordable Care Act, since, while it sounds fine on the surface to keep insurance companies from spending too much of their premiums on administrative costs, there are both unintended consequences and problems with the definitions. For example, since the MLR is a ratio, there is a significant incentive for carriers to increase rates. (15% of $1000 is greater than 15% of $500.) At least some of the increases in rates since the passage of the Affordable Care Act can be attributed to this effect. As another example, anti-fraud investigation and enforcement efforts by insurers are treated as administrative costs. Since one of the main drivers of cost increases in health care is fraud, treating fraud prevention as an administrative cost discourages prevention. This also tends to increase the cost of health care.
In any case, insurers who fail the test must provide their rebates through one of the following methods: a lump sum check in the mail; a lump sum credit to the debit or credit card account from which the payments were made; a credit against 2012 premiums; or a payment through the employer using one of those methods. If the insurer provides the rebates to the employer, the employer must then go through the exercise of calculating the portion due to its employees and providing them with their appropriate shares.