MLR regs saved consumers $2.1B in 2012

A report issued June 6 by the Kaiser Family Foundation contends that the medical loss requirement (MLR) of the Affordable Care Act saved health insurance consumers $2.1 billion in 2012.

The analysis, based on insurer data filed with state regulators, suggests that the bulk of these savings accrued to people who purchased insurance on their own in the individual market as opposed to those who get their insurance via an employer in either the larger group or small group market.

"The majority of plans sold to small and large businesses were already in compliance with their respective MLR thresholds before the law went into effect," the report noted. "In the individual market, by contrast, fewer than half of plans were in compliance with the ACA's MLR thresholds in 2010, and the average traditional MLRs in this market have been steadily increasing since the requirement went into effect."

To attempt to estimate the total premium savings for 2012, the researchers estimated what insurance premiums might have been had they been set if MLRs had been set according to what they were in 2010. In this way, the report captured not only the reported premium rebates ($241 million in 2012), but also how much higher or lower premiums would have been had rates been set at 2010 ratios.

Using this method, the estimated premium savings in the individual insurance market would have totaled nearly $1.9 billion last year and when combined with the rebates paid represented a total savings of more than $2.1 billion.

That said, the report does note that there are some limitations to this method of analysis.

"It is hard to know with certainty what premiums would have been if the MLR rules were not in place: we cannot know for sure how insurers would have priced their products or what rates regulators would have allowed (to the extent that they reviewed rates prior to the ACA)," the report noted. "It is also difficult to separate out the direct effects of the MLR provision from other aspects of the health reform law, particularly rate review, which works to moderate unreasonable premium increases and thus increase loss ratios."

Further, good data sources across the insurance plans for major medical coverage on claims to premiums ratios used to calculate the MLR were not available prior to 2010 when the new requirement was put into effect. In addition, the report added, there remain questions on the quality of the data collected in 2010 and 2011, "particularly regarding expenses for quality improvement and other new categories of administrative expenses that are reported on the exhibit."

Robert Laszewski, a former insurance industry executive and president of Alexandria, Va.-based consultancy Health Policy and Strategy Associates, contends the analysis is flawed on a much more fundamental basis than suggested by the researchers.

In his blog "Health Care Policy and Marketplace Review," Laszewski argues that using the 2010 MLR as the point of comparison is in itself flawed since that would have been one of the first years the industry saw markedly lower increases in medical cost trend as a result of the recession.

"...Insurance companies came into 2009 and 2010 using projections for health insurance cost increases (trend) at levels much higher than we actually experienced," he wrote in his blog. "For reasons we are still trying to understand, health care cost trend levels about collapsed in 2009 compared to recent historic levels and the levels that were prospectively priced into the individual insurance market for 2010."

The result was insurers, who were projecting price trends to increase at their historic levels, priced too high. The unexpected decrease in medical spending also produced a relatively low MLR of 78 percent. In subsequent years, insurers scaled back their growth pricing trend forecast – "and effectively gave back" – that extra pricing cushion in 2011 and 2012, Laszewski contends. And it was this natural rejiggering of insurance rates, as has occurred for decades even before the MLR requirements came into effect, that created the "savings" shown by Kaiser for 2012.

"I will be the first to admit that what changed the 2010 MLR from 78 percent to 83 percent in 2012 is likely the combination of many events – some we can observe and some we can't. But at least my thesis is grounded on events in the historical context of how the industry works," Laszewski concluded. "I will also concede that the new MLR rules have brought individual market expense down – though not by the overly optimistic analysis the Kaiser Foundation has offered."