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.
The overall increase in health insurers’ rebate payments for 2014 may be at least partly due to strong results in 2012 and 2013, and some insurers that did well at pricing in 2012 and 2013, but poorly in 2014, may have found themselves having to make big rebate payments due to solid underwriting gains recorded in earlier years.
But the same mechanism could help insurers hold rebate payments down in the future, if they have strong underwriting years after one or two disappointing years.
A report from the National Association of Insurance Commissioners (NAIC) shows individual major medical insurers had an overall loss ratio of 98.55 percent in 2014.
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