Medical Loss Ratio Provision Pays Consumers $5 Billion From 2011-2013

The adoption of the Affordable Care Act’s medical loss ratio provision, which requires insurers spend 80%-85% of premiums on medical care and quality improvement, has yielded large benefits for consumers from 2011 to 2013, according to a new report from The Commonwealth Fund.

Consumers have received more than $5 billion in benefits during that time period, either through rebates from insurance companies or through reduced health plan spending on overhead. Authors Michael McCue of Virginia Commonwealth University and Mark Hall of Wake Forest School of Law found that as insurers comply with spending requirements, rebates to consumers have dropped from more than $1 billion paid in 2011 to $513 million in 2012 and $325 million in 2013.

“The Affordable Care Act’s medical loss ratio provision improves the protection health insurance affords people, by setting minimum standards for spending on medical care, while also encouraging insurers to invest in quality initiatives,” Commonwealth Fund President David Blumenthal, MD, said in a statement. “These findings show that insurers can improve coverage for consumers while remaining competitive in the health insurance market.”

However, insurers’ spending on activities to improve quality of care remains at less than 1% of premiums. The researchers did not a modest reduction in the number of insurers in the market, but it was in line with recent insurance market consolidation trends. There are still roughly 500 insurers in the individual, small-, and large-group markets across the country.

In fact, not only does the modest reduction in the number of insurers appear not to be strongly related to the Affordable Care Act, but the healthcare reform’s creation of subsidized insurance marketplaces actually brought a significant number of new insurers into the market, according to the authors.

While insurers’ total profits have declined only slightly, by 0.2% since 2011. According to the report, there were modest profit margin decreases in the individual market, but they were offset by modest increases in the small- and large-group markets.

“With the ability to look at 3 years’ worth of data, it is clear that consumers are benefiting from the Affordable Care Act’s medical loss ratio provision and insurers are adapting to it well,” Mr McCue said. “Insurers have brought their overhead expenses in line without sacrificing profits.”