A GAO report released this week purports to demonstrate that early indicators show that the new medical loss ratio (MLR) standards mandated in the Patient Protection and Affordable Care Act would have worked for most insurers in 2010.
However, the individual market is one where high commissions continue to exist, according to the report.
Insurers in the individual market still averaged higher nonclaims expenses, including expenses for brokers’ commissions and fees, than those in other markets, the GAO report found.
“The GAO report supports what we have long predicted: PPACA’s immediate impact has been diminishing access to health insurance agents, particularly in the individual and small-group markets,” stated Janet Trautwein, CEO of National Association of Health Underwriters (NAHU).
“Though insurance premiums are slightly down, we are already seeing a pattern emerge where, over time, the current MLR regulations will reduce the number of insurers willing to write health insurance in the individual and small-group markets, or both, which will leave consumers underserved, reduce competition and cause countless insured individuals to lose coverage,” Trautwein said in a statement to National Underwriter.
By “most,” the GAO report refers to “at least 64% of all credible insurers would have met or exceeded the 2011 PPACA MLR standards.” The individual market did not meet or exceed the standards to the same extent that the large and small group markets did.
The percentage of insurers in the large and small group markets that met or exceeded the standards were 77% and 70%, respectively, compared to a lowly 43% in the individual market, where most of the turmoil has been anecdotally.
Beginning in 2011, PPACA required insurers to meet minimum PPACA MLR standards of 85% in the large group market and 80% in the small group and individual markets or pay rebates to their enrollees. The Department of Health and Human Services (HHS) includes an adjustment for certain insurers to help address the disproportionate impact of claims variability on smaller health plans.
Insurers that cover at least 1,000 but less than 75,000 life years (partially credible insurers) get to use a “credibility adjustment.” Insurers that cover 75,000 or more life years don’t get to do this.
Some would argue that the MLR provisions are working, because most covered “lives” were associated with insurers that would have met or exceeded the standards; most “lives” were covered by large and small group market insurers.
The average adjusted PPACA MLRs for individual, small group, and large group market insurers in 2010 were 7.5, 6.5, and 4.8 percentage points higher, respectively, than the average MLRs for these markets calculated without the “credibility adjustment” and using the traditional MLR formula, so it could be argued the adjustment works.