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Commonwealth Fund: Had MLR Started in 2010, $2 Billion Would Go to Consumers

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If the Patient Protection and Affordable Care Act’s (PPACA) healthcare coverage spending provision commonly known as the MLR or medical loss ratio had been in place in 2010, consumers nationwide would have received an estimated $2 billion in rebates from health insurers, according to an analysis by the Commonwealth Fund, a private healthcare system improvement foundation.

The newly released study estimated how much consumers in each state would have received in total rebates, and the number of insurers that would have been required to give rebates if the rule had applied in 2010.

The $2 billion would have been evenly split between the individual market and the small- and large-group market. 

Almost $1 billion, or $965,073,457 in rebates would have been issued to about 5.3 million people who receive coverage through the individual market, or 53% of all those with individual coverage nationwide in 2010, according to the report.

Another $1 billion would have gone to about 10 million people with policies in the small- and large-group markets. 

About one-quarter (23%) of privately insured consumers in all markets would have received rebates, the study reported.

Total estimated annual rebates for the top rebate states would have been, according to the study: Texas ($255 million); Florida ($202 million); Virginia ($128 million); Illinois ($112 million); and Maryland ($109 million).

Texas would also have the highest number of insurers, at 15, that would have had to offer a rebate in individual coverage, followed by Illinois, with states like Florida, Pennsylvania and Missouri not far behind, with 10. The report footnote stated that California data was incomplete. In Florida, for example, individual rebates would likely have ranged from $100 to $300. 

See also: Interactive Rebate Table

PPACA’s MLR provision requires at least 80% of all health insurance premiums go toward medical costs, leaving 20% for administrative costs. The NAIC’s called on the Department of Health and Human Services and Congress to modify the MLR would also call for holding off on enforcing the MLR, or approving state MLR adjustment requests.

The MLR rule aims to control private insurance costs for consumers and the government by requiring that an 80% minimum percentage of premium dollars go toward medical care and health care quality improvement. Insurers must issue rebates if they do not meet the numbers. The number rises to 85% in the large group market. 

Not all are fans.

Agent compensation is, famously or notoriously, as the case may be, not included in the numerator of this equation.

“This arbitrary federal cap on health plan administrative costs does nothing to address the underlying cost of medical care that drives premium increases,” stated Robert Zirkelbach, Vice President, Strategic Communications for America’s Health Insurance Plans (AHIP.)

“The potential coverage disruptions and other unintended consequences of this new regulation are likely to outweigh any benefit these rebates will provide.  Moreover, the new health care reform law includes a number of provisions, such as a new premium tax, that will cause premium increases that exceed the value of prospective rebates,” he said in response ot the study.

The Commonwealth Fund estimates purport to offer a prediction of what consumers may expect to see in August of this year –if the PPACA is upheld here in Washington–when insurers are required to issue rebates to 2011 policy holders if the insurers do not meet the new MLR thresholds, which took effect Jan. 1, 2011. 

According to the study, insurers will either be motivated to reduce rates or expand medical coverage to avoid rebates, or they will have to issue them. Many agents say they have already been motivated to cut commissions.

The study was conducted by Mark Hall of Wake Forest University and Michael McCue of Virginia Commonwealth University.

The stated mission of The Commonwealth Fund is to promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults.  

In more forward-looking regulatory health insurance news, health insurers in Connecticut have agreed to mail out the notification letters at the same time they submit a rate filing to the state Department of Insurance, states Insurance Commissioner Tom Leonardi. 

The letters will go out consumers who have individual policies and, in the case of small group, will be mailed to the employer. The letter will direct consumers to the Health Insurance Rate Filing link on the Department’s Web site. The site includes the company’s rate request, correspondence with the Department, a section for public comment and a brief easy-to-understand summary of the entire filing. The letter also directs the policyholder to the Department’s e-Alert section.