Will Obamacare’s medical loss ratio help or hurt consumers?

Among the lesser-known but more far-reaching provisions of federal health reform is the medical loss ratio requirement that the law imposes on health insurance companies.

Medical loss ratio (MLR) regulations are aimed at controlling cost and dictate that insurers must spend a certain percentage of the premium dollars they collect on medical care, rather than on administrative costs or shareholder dividends, for example. Obamacare requires that insurers spend a minimum of 80 percent of premium dollars on medical costs in the individual and small-group markets, and 85 percent in the large-group market.

If they fail to meet those numbers, health insurers must issue rebates to consumers.


New research from the Commonwealth Fund shows that, had MLR requirements been in effect in 2010, insurance companies would’ve been required to issue $2 billion to consumers in rebates.

Commonwealth Fund officials hailed the research as illustrating that MLR requirements will help hold down the cost of premiums and improve the affordability of health insurance.

Researchers found that, in 2010, the total rebate amount would’ve been split about evenly into two buckets — the individual market and the small- and large-group markets — each of which would’ve received about $1 billion in rebates.

About 53 percent of people in the individual market and about 23 percent of Americans in the private-insurance market, would’ve received rebates, according to researchers. Most rebates would’ve ranged from $100 to $300.

As a result of MLR requirements, insurers will be motivated to either reduce prices or expand coverage — or risk paying rebates to consumers, according to the Commonwealth Fund.

Conservative opponents of Obamacare aren’t buying that.

Instead, insurers will merely pass the costs of rebates on to consumers, wrote Sally Pipes, president of think tank the Pacific Research Institute. Pipes has authored a book called “The Truth about Obamacare” and is working on another titled “The Top Ten Solutions for Dismantling Obamacare: A Citizen’s Guide.”

“Insurers won’t just eat those losses,” Pipes said of MLR rebates. “They’ll raise premiums to compensate. And consumers will be left holding the bag.”

Obamacare’s medical loss ratio requirements went into effect on Jan. 1, 2011, and insurers are already feeling the pain, according to Pipes. WellPoint, the country’s biggest insurer, paid an estimated $300 million last year because of the rule, while the cost to Aetna was $100 million, she said.

“The easiest way for many insurers to drive administrative expenses below the threshold would be to hike premiums and simply pay healthcare providers more money,” Pipes said. “That might be good news for doctors and hospitals — but it certainly won’t be for patients.”

Of course if the Supreme Court overturns health reform, all the talk of medical loss ratio requirement likely becomes irrelevant. And that, health reform proponents would surely say, is what would really hurt consumers.

[Photo from flickr user Nevada Tumbleweed]

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