The Medical Loss Ratio (MLR) Report—Just Fiddling While Rome is Burning

Today’s headline was, “Millions Expected To Receive Insurance Rebates Totaling $1.3 Billion.”

The Kaiser Family Foundation estimates that 3.4 million people in the individual market will receive $426 million in consumer rebates because of the Affordable Care Act's new MLR rules. In the small group market 4.9 million enrollees will see $377 million in rebates, and 7.5 million people will get $540 million in the large group market.

Wow!

But take a closer look at the report. Only 19% of those in the large group market will be getting a rebate and that rebate will average $72.31 per person. In the small group market 28% of those enrolled in these plans will get a rebate averaging $76.37. And, in the individual market 31% of consumers who have these plans will get a rebate averaging $126.81.

The Wall Street Journal, citing a Goldman analysis, is reporting that Aetna will be paying out $177 million in rebates. But Aetna has $11 billion in premium so that’s only a 1.6% rebate. UnitedHealth will be paying out $307 million but that is only 1% of its $28.8 billion in premium. Wellpoint will pay out $94 million in rebates but that is only .28% of its premium for the year.

The average cost of employer-provided family health insurance is now about $13,000 per year. A family rebate of perhaps $200 will amount to only about 1.5% of premium for the relatively few people who will even get one.

I am surprised that the rebates are so low given how closely health plans have to calculate their pricing margins and with claim costs coming in less than expected during 2011.

The politicians can celebrate $1.6 billion in premium rebates that will not be going into the health insurers’ pockets as profits. That is true but their first quarter profits didn't appear to be suffering either.

But does a $200 rebate on a $13,000 premium make health insurance any more affordable?

This week, amid their first quarter earnings reports, health insurers said that their health insurance prices are expected to rise by an average of 6% to 6.5% during the next year—well above inflation and well above wage rates. And, typically, individual and small group price increases significantly exceed a company’s average cost increases.

So, just what impact has the first year’s MLR experience had on making health insurance any more affordable?

In the past, I have called the Medical Loss Ratio rules the jumbo insurance company full employment act. These MLR rules only serve to push competitors out of the market and accomplish little.

In order to comply with the new MLR rules most insurers simply cut insurance agent/broker commissions—which then caused the insurance agents to pass their cost of doing business directly onto their customers in direct fees outside normal insurance premiums.

I’d like to see a calculation for how much all health insurance policyholders have had to pay in higher agent/broker fees because of the MLR rules compared to the small percentage that will receive a rebate.

The Affordable Care Act saves consumers $1.3 billion!!!!

And, health insurance costs keep going up just like they did last year, and the year before that, and the year before that.