With federal rules governing health plan spending looking like they're here to stay, insurers are making inroads on compliance, although they will hope for possible tweaks in the future.
In 2011, the first year of the Affordable Care Act's medical cost ratio requirements, insurers rebated a collective $1.1 billion to their members for not spending at least 85 percent of premiums for large group business and 80 percent of premiums for small group and individual plans on claims for medical care.
In 2012, as insurers made efforts to direct more premium revenue to member spending, revenue rebated dropped by about half, to $520 million, according to a review by the Government Accountability Office.
More than 75 percent of insurers met or exceeded the minimum medical cost ratio standards in 2011 and in 2012, with a ratio of 88 percent in each year, the GAO found, although that varied by market segments, especially for the pre-exchange individual market.
In 2012, 86 percent of insurers in the large group market and 81 percent of insurers in the small group market met or exceeded the MLR standards, compared to just 70 percent in the individual market.
Insurers don't seem to be adversely impacted by the requirements, GAO analysts concluded, based on interviews with eight different companies. All eight insurers said that the requirements "did not affect their decisions to stop offering health plans in certain markets and have had no effect or a very limited effect on their spending on quality improvement activities," GAO analysts wrote.
But there is lingering debate over some particular classifications in the medical cost ratio -- and the greater incentives it brings.
There has been concern in the broker community that the MCR's categorization of fees paid to agents and brokers in the 15/20 percent category of marketing and administrative costs could lead to both decreased compensation for brokers and consumer access to their services. And there is also 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 by the GAO said they have reduced their payments for agents and brokers -- one insurer listed the MCR as a primary driver of the decision -- either through the introduction of flat fees or a reduction in percentage-based fees.
Indeed, spending on agents and brokers were among the largest areas in the marketing and administrative category. Had agents and brokers fees not been included in the MCR (and some lawmakers in Congress are hoping to remove it), 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.
Going forward, with the MCR set to continue, agents, brokers and all, unless federal regulators or lawmakers warm up to new tweaks, insurers will be challenged to keep a steadier balance of premium increases, knowing they may have to issue refunds.
Two insurers the GAO interviewed said the MCR requirements have generally moderated their premium increases. One said that if it does not meet the MCR standards in its planning, it will probably adjust its premium rate increases to avoid the expenses and administrative work of rebates.