A mechanism that is supposed to make the medical loss ratio (MLR) rebate system steadier may skew the picture it gives of the U.S. health insurance market, and may be increasing health insurers’ pain in bad years.
Industry watchers have made that argument in assessments of a LifeHealthPro.com article based on Patient Protection and Affordable Care Act (PPACA) MLR rebate data for 2014 compiled by Mark Farrah Associates (MFA).
PPACA requires insurers to spend 85 percent of large-group revenue and 80 percent of individual and small-group revenue on health care and quality improvement efforts. Insurers that miss the minimum MLR mark are supposed to send rebates to the enrollees. Insurers made their first MLR rebate payments in 2012, for the 2011 plan year.
The new MFA analysis shows that seven of 10 top individual major medical insurance sellers tracked paid rebates for the 2014 plan year. The overall rebate payment total for 2014 increased 42 percent, to $478 million.
Industry watchers are highlighting a regulatory shift mentioned by the MFA analysts, but overlooked by this reporter and missing from the latest Centers for Medicare & Medicaid Services (CMS) MLR rebate summary: For the first two years the MLR system was in effect, insurers could use one year of data to calculate rebates, but insurers are now supposed to use a rolling average of three years of data.
For 2014, insurers were also supposed to assume the PPACA risk corridors program would collect enough cash from the insurers paying into the program to cover all of its obligations. CMS officials now estimate the program will collect enough cash from thriving insurers to pay only about 13 percent of what it owes struggling insurers.