While some evidence suggests medical cost ratio mandates are helping make healthcare more affordable, there are still some long-term doubts.
The Affordable Care Act's 80/20 and 85/15 rules -- capping administration and profits as a proportion of total premium revenue -- have been in place since 2011. In part, they're helping hold down healthcare inflation to a record-low growth rate of 3.6 percent in 2013, according to an annual study by actuaries at the Centers for Medicare & Medicaid Services.
"A few key provisions exerted downward pressure on health spending growth in 2013, including the productivity adjustments to Medicare fee-for-service payments, reduced Medicare Advantage base payment rates, increased Medicaid prescription drug rebates and the medical loss ratio requirement for private insurers," wrote CMS statistician Micah Hartman and colleagues in Health Affairs.
Increases in healthcare premiums slowed from 4 percent in 2012 to 2.8 percent in 2013, the study found. Among the contributing factors to that trend, they argue, are the "continuing shift to enrollment in consumer-directed high deductible plans and other benefit design changes; historically low underlying benefit cost trends; and the impact of several provisions of the ACA, such as the medical loss ratio requirement and rate review."
The authors peg the MLR as a contributing factor to downward premium pressure, although its exact impact is not quantified and the industry may still have doubts about it.
For one thing, many insurers have taken a few years to catch up to the MLR requirements, issuing $330 million in refunds to some 6.8 million members this year for failing to spent at least 80 percent of premiums in individual and small group plans, or 85 percent in large group plans. Since 2011, paybacks to consumers have reached $1.9 billion.
The MCR may pose uncertainties particularly in high deductible health plans (whose increasing enrollment isalso a factor in record-low health spending), anti-fraud activities, and the use of agents and brokers.
Because consumer-driven high deductible plans "are not necessarily less costly to administer on a per-enrollee basis, they will naturally have lower loss ratios and a greater likelihood of being noncompliant with the MLR," warned representatives for America's Health Insurance Plans in 2011.
High deductible plans pay fewer claims than plans with low deductibles, though when HDHPs pay claims they are usually large, upwards to $3,000, $4,000 or $5,000. "This lower-frequency/high-payment creates less actuarial predictability, which can result in high claims in one year and low claims in another," as analysts with the American Bankers Insurance Association said.
"If the plan has low claims, it may not meet the 80 percent medical loss ratio and be required to pay rebates. If the plan has high claims, it may lose money that it cannot 'make up' in other years," said the American Bankers Insurance Assocation.
Then there are agents and brokers, whose costs are categorized under administration and profits, in the 15-20 proportion.
Already, there is some evidence of insurers changing the way they pay and use brokers, amid the rise of exchanges in tandem with the MCR.
Four of the eight insurers interviewed in a Government Accountability Office study said they have reduced their payments for agents and brokers, either through the introduction of flat fees or a reduction in percentage-based fees, and one insurer listed the MCR as a primary driver of the decision.
Had agents and brokers fees not been included in the MCR, the $1.6 billion in rebates issued to insurance members in 2011 and 2012 would have been substantially smaller, probably less than $500 million, the GAO estimated.
Another area of concern is the impact of the MCR on anti-fraud programs. While fraud recoveries are considered quality-improvement activities under the MCR regulations, fraud prevention is considered to be administrative. That leaves some observers wondering if the MCR then leaves out an incentive to fix root causes of fraudulent billing and spending waste.