New data show insurers nationwide spent an average of 92 percent of individual health plan premiums on patient care or quality improvement in 2014, leaving 8 percent for administrative costs and profits. Experts say this is a significant change from pre-health reform figures.
In an effort to provide consumers with high-value health plans, the Affordable Care Act (ACA) requires insurers to spend at least 80 percent of individual premium costs on patient care and quality improvement efforts. Insurers that spend less than 80 percent of their premium revenues on patient care and quality improvement must now provide customers with a rebate for the difference between what they spent and the 80 percent requirement—known as the medical loss ratio (MLR). Prior to the ACA’s 2010 implementation, the average MLR for all insurers in 29 states failed to hit the 80 percent figure. By 2014, every state had an average MLR at or above 80 percent.
The data are documented in new briefs prepared by researchers at the Urban Institute, with funding from the Robert Wood Johnson Foundation.
In 10 states (Hawaii, Illinois, Kansas, Massachusetts, Minnesota, Montana, New Mexico, Oklahoma, Oregon, and Pennsylvania) and the District of Columbia last year, the average individual plan MLR was more than 100 percent—meaning that insurers spent more on medical care, on average, than they brought in from premiums. This could signal upcoming increases in the average premium amount, as insurance companies adjust premiums or services to more closely hit the ACA-mandated 80 percent MLR threshold.
Experts say people in other states, including 24 states with average MLR rates between 80 and 89 percent, will likely see less dramatic increases in the average premium costs.
“The upward trend in medical loss ratios in the individual market shows the impact of the ACA coverage provisions,” said Kathy Hempstead, who directs coverage issues at the Robert Wood Johnson Foundation. “This trend, as well as the geographical pattern, suggest how premiums may need to adjust as some of the federal stabilizers phase out over the next few years.”
