MEDICAL LOSS RATIOS – AGAIN!

A new study, reported in the American Journal of Managed Care, seems likely to add more heat to the continuing medical loss ratio controversy.

The Accountable Care Act effectively mandates that health insurers achieve MLRs of 85 percent for large group business and 80 percent for small group and individual business, with insurers not meeting these thresholds required to make rebates to affected policyholders. However, the ACA allows HHS to issue a waiver if the requirement would disrupt a state’s insurance market. So far, an individual coverage waiver has been granted to the State of Maine, with eight other states’ waiver requests being considered.

The study reported by AJMC examined individual coverage data from health insurer filings to state regulators, as reported to the National Association of Insurance Commissioners. For each state (except California, where most health insurers report to a state agency other than the Insurance Commissioner), the study computed the number of individuals with coverage (in terms of enrollee-years), the number of insurers offering coverage, and the medical loss ratios (recomputed to reflect differences between ACA’s definition of MLR and that used by the NAIC). Based on this data, the study went on to estimate the number of enrollees in plans failing the ACA’s 80 percent threshold, and the number of higher-risk individuals who might have difficulty in finding coverage if their insurer exited the market.

At first sight, the findings seem dramatic and very different from the expectations of the MLR provision’s Senate authors. The AJMC article estimates that in nine states (Arkansas, Illinois, Louisiana, Nebraska, New Hampshire, Oklahoma, Rhode Island, Wyoming, and West Virginia) at least half of the individual health insurers missed the 80 percent threshold in 2009, while in twelve states (Arkansas, Arizona, Florida, Illinois, Indiana, New Hampshire, Nevada, South Carolina, Tennessee, Texas, Virginia, and West Virginia) more than half of the enrollees were covered by insurers failing the standard, with some two million individuals nationally covered by such insurers. The study then projected that overall more than a hundred thousand enrollees (with more than ten thousand in each of Florida, Illinois, Texas, and Virginia) would find it difficult or impossible to find coverage if their non-MLR-compliant insurers exited the market.

If the study’s findings are accurate, somewhere between a dozen and twenty states could reasonably demand waivers of the individual market MLR standard. However, as the authors note, there were significant study limitations as well as possible source data inaccuracies. Enrollment in health plans offered by life insurers was generally omitted, as was all data from California. Additionally, the findings are dependent on state reporting to the NAIC, something that some of the data shown in the article suggests may be unreliable. For example, Maine—the only state so far granted an MLR waiver—is shown as having an average MLR well above the 80 percent threshold, while insurers in Michigan are shown as having an average MLR in excess of 1.0 in both 2002 and 2009—an unlikely consistently money-losing trend in a large state.

Given the apparent data limitations, what can be deduced from the study? In general—although not in the case of Maine—it supports the claims of the nine states that have so far submitted waiver requests. On the other hand, it appears that many insurers who in 2009 were below the 80 percent level were only just below, suggesting that they might be able to achieve the standard in the future, while in states with fewest consumer protections, the possible exit of some minimal benefit insurers may actually be beneficial. In addition, insurers failing the 80 percent standard will not necessarily exit the market; some may prefer to keep their policyholders in the hope that the potential implementation of the individual mandate and new benefit standards in 2014 will make the individual market profitable again.

None of this, however, is an argument for the ACA’s MLR requirements. Assuming HHS continues its recent generous waiver policy, the overall effect is likely to be the exit of a minimal number of low benefit carriers at the expense of cancellation of coverage for several thousand individuals, some imaginative manipulation of numbers by some insurers, some reductions in profit and administrative costs by others, and a substantial increase in bureaucratic oversight.