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Individual market ails as MLR rules roll in

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Researchers have a hard time teasing the effects of the new minimum medical loss ratio (MLR) rules on health insurers from the effects of other factors.

But Michael McCue, a health administration professor at Virginia Commonwealth University, and Mark Hall, a law professor at Wake Forest University, have tried to see how the start of MLR rules enforcement correlates with changes in health insurance product performance.

Large and small group plans seem to have done better in 2011 than in 2010, but individual insurance operations seem to have done worse, the researchers reported in an MLR paper published by the Commonwealth Fund.

The researchers based their work on health insurance company financial data collected by the National Association of Insurance Commissioners.

Members of Congress included the MLR provisions in the Patient Protection and Affordable Care Act (PPACA) in an effort to get health insurers to spend a higher percentage of revenue on health care.

The provisions require health insurers to spend at least 85 percent of large group revenue and 80 percent of individual and small group revenue on health care and quality improvement efforts.

The MLR rules started to take effect Jan. 1, 2011.

The researchers found that the rules may have had some effect on administrative costs at group plans but little or no effect on their MLRs.

At small group plans, the average amount of administrative costs fell to $489 to enrollee, from $507, but the average MLR held steady at 83.6 percent. Operating profit per enrollee increased to $132, from $121.

At large group plans, average administrative costs fell to $322 per enrollee, from $341, and the average MLR increased to 89.2 percent, from 89.1 percent. Operating profit per enrollee increased to $95, from $68.

For individual policies, average administrative costs fell to $431, from $462, and the average MLR rose to 84.1 percent, from 80.8 percent.

Insurers ended up with a $31 loss for each individual enrollee, compared with a $4 profit in 2010. 

The MLR pressure might make individual health coverage a better deal for consumers, but, “on the other hand, further pressure on premium rates might cause some insurers to leave certain market segments, if they cannot maintain adequate profits,” the researchers said.

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