In a just-completed study of the Medical Loss Ratio (MLR) provisions of the Affordable Care Act (ACA), the Kaiser Family Foundation estimates that health insurers will be rebating $27.6 million on nearly 300,000 North Carolina policies in August. Nationally, the foundation estimates that $1.3 billion will be rebated on nearly 16 million policies.
The MLR provisions of the ACA require insurers to spend a certain percentage of total premium revenue on actual health expenditures rather than things like advertising, administrative salaries, and profits (that the insurers refer to these health expenditures as "losses" tells you most of what you need to know about their incentives). Under the ACA, insurance plans that are offered to individuals or small groups are supposed to spend at least 80 percent of their premium revenues on health care claims and services, and plans that are offered to large groups are supposed to spend at least 85 percent of their premium revenues on health care. Insurers who fail to meet these MLR thresholds have to issue rebates to the people and firms that purchased the policies.
Although the ACA has been law for a few years, the MLR provisions are only now coming into effect. Also, North Carolina obtained a waiver for this year which sets its MLR threshold at 75 percent.
After a review of insurance company filings, the Kaiser Family Foundation estimates that 55,072 individual enrollees in North Carolina will be issued $6.4 million in rebates from 9 insurance plans this year, 97,670 small group enrollees will be issued $4.3 million in rebates from 5 insurance plans, and 139,156 large group enrollees will be issued $16.9 million in rebates from 6 insurance plans. Overall, rebates will be due on the plans for just over one out of every five North Carolina enrollees.
The MLR provisions help consumers in two ways. First, there are the rebates themselves, which transfer money back to consumers or businesses for plans with bloated administrative expenses and excess profits. This directly lowers the effective costs of insurance for these plans. Second, the provisions provide strong incentives for insurers to avoid these rebates by either paying a higher portion of their premium revenue in claims and services or keeping their administrative expenses and profits within reasonable levels. This indirectly lowers the net costs of insurance for all purchasers.
These provisions will disappear if Republicans or the Supreme Court repeal the ACA. In addition, U.S. Representatives Coble, Ellmers, Jones, Kissell, McIntyre, and Myrick have co-sponsored legislation (H.R. 1206) to water down the provisions by excluding insurance agents' commissions from the calculation of administrative expenses.