March 31 marked the end of the first open enrollment period under the Affordable Care Act’s (ACA) newly launched health insurance marketplaces. As insurers plan for the next open enrollment period, they will be evaluating their experiences to date in complying with the ACA’s medical loss ratio (MLR) requirement. This provision of the ACA requires that at least 80 percent of insurers’ premiums are spent on medical care and quality improvement, with the balance available for administrative costs like marketing. A recent notice in the Federal Register indicated that the Department of Health and Human Services will propose several amendments to ease the MLR rules.
In MedPage Today, Washington Correspondent David Pittman notes that adjustments to the MLR may be necessary to address the administrative and technical challenges insurers faced in ACA marketplace implementation and enrollment. The proposed rule addresses concerns that insurers, particularly in the first open enrollment period, may fail to meet the 80 percent MLR requirement due to the significant administrative resources that were necessary to help consumers enroll in coverage via the online marketplaces.
Shortly before the MLR requirements went into effect, HCFO hosted a meeting with market analysts, industry representatives and actuaries, and regulators to discuss the relationship between MLRs and the stability, or destabilization, of insurance markets. The discussion is detailed in a related issue brief. Meeting participants identified warning signs that policymakers could monitor to assess market stability including market contraction (e.g. carriers reducing marketing or products, closing blocks of business etc.) and market volatility (e.g. large changes in premiums, shifts in marketing strategies etc.)
While the meeting focused on the transition period between January 2011 when the MLR went into effect and January 2014 when the ACA was fully implemented, the discussion of MLR requirements, market stability, and the impact on consumers remains relevant today. In particular, meeting participants noted that the MLR requirements are just one of many factors contributing to an insurer’s decision to enter or leave a market. Others factors include restrictions on rating and underwriting, new minimum health benefit standards, administrative reporting requirements, expanded access to Medicaid, availability of subsidies, the emergence or expansion of other types of plans, among other reforms. Plans’ decisions to enter or leave the market between open enrollment periods will have major implications for consumers’ continuity of coverage and choice on the marketplaces.
In a HCFO-funded study, Jean Abraham, Ph.D., University of Minnesota, estimated the potential impact of the minimum 80 percent MLR on insurers and enrollees in the individual market in each state to inform functioning under full ACA implementation. While Abraham’s work established pre-ACA baseline estimates, her findings have important implications for policy and practice in the current ACA environment. Abraham used data from the National Association of Insurance Commissioners (NAIC) from 2002-2009 to estimate: the number of insurers operating in each state; the number of insurers that would have MLRs below the 80 percent minimum; and the number of individuals likely to experience major coverage disruptions due to their insurer falling below the MLR. Abraham found that in 9 states at least 50 percent of insurers would likely fail to meet the 80 percent minimum MLR. If insurers are unable to meet the minimum MLR requirement, they may choose to reduce product offerings or leave the market entirely, which could cause disruptions in enrollees’ insurance coverage. Insurers’ outreach and enrollment activities in the first open enrollment period will likely challenge meeting the 80 percent minimum MLR and, without an adjustment, could result in reduced plan offerings or market exit. Additional information about Abraham’s HCFO-funded study is available here.
In related work, HCFO researcher Richard Scheffler and colleagues at the University of California, Berkeley are examining the impact of state-level rate review regulations to determine whether such regulation moderates insurance premiums, thus making insurance more affordable for families and small employers. More detail is available here.