Moody’s Investors Service, a major rating agency, is responding to Patient Protection and Affordable Care Act (PPACA) changes by looking harder at how steady health carriers hold their medical loss ratios.
Moody’s, New York, describes the change in a U.S. health insurer rating methodology update. The update replaces a 2007 health insurer methodology.
The minimum medical loss ratio (MLR) provision in PPACA now requires U.S. health insurers to spend 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts or else provide rebates.
Moody’s uses a total of five factors to rate health insurers: market penetration and brand; product risk and concentration; capital adequacy and quality; profitability; and financial flexibility.
In the past, Moody’s included an adjusted MLR sub-factor in the profitability factor.
Now, Moody’s is replacing the adjusted MLR sub-factor with the MLR standard deviation for the past five years.
The more the MLR changes from year to year, the bigger the standard deviation will be.
Moody’s would like to see the highest-rated U.S. health insurers have an MLR standard deviation of less