The Trump Administration recently issued a proposed regulation that could have significant implications for consumers on a number of fronts, including how much of their premium is actually spent by insurers on their health care needs.
The ACA requires insurers to meet a minimum medical loss ratio (MLR). The MLR, often called the “80/20 Rule,” measures how much a health insurer spends on health care and quality improvement activities, compared to what it spends on administrative overhead and profits.
Specifically, the ACA requires insurers selling individual and small group policies to maintain a minimum MLR of 80% (meaning 80% of their revenue must be spent on health care or improving health care quality); 85% for insurers selling large group policies. If this target is unmet, insurers must then pay a rebate to consumers and business owners. Since 2011, when insurers were first required to meet the MLR standards, insurers have paid out $2.8 billion in rebates to consumers and employers.
Implications for states and consumers
Under the proposed regulation, the 80/20 rule would be weakened, making it easier for insurers to meet the current threshold or a much lower one in states that request an adjustment. Insurers would no longer be required to detail quality improving activities before counting them towards meeting the MLR standard. It would also be easier for states to apply to HHS for a lower MLR standard, basically encouraging insurers to lobby states to allow them to dedicate more premium dollars to profits, versus spending on the health care needs of consumers.
These federal efforts do not come as a surprise, as the Trump administration has made clear they are looking for ways to decrease regulatory burdens on insurers subject to the consumer protections under the ACA. To this end, there are already growing concerns about how closely federal regulators are auditing insurers’ compliance with the MLR standards. The last time federal regulators posted the results of an MLR examination report of an insurer was close to a year ago, in December of 2017, and that was for a plan offered in 2013. This should be of concern to state regulators, who rely on the federal MLR enforcement program to ensure that insurers are meeting the current MLR standards.
This trend toward a federal relaxation of the MLR standard comes at a critical time, as insurance companies continue to ask for premium rate increases that reflect growing uncertainty over potential federal policy changes under the Trump administration.
While there is no doubt that insurers are justified in adjusting premiums to reflect the current policy uncertainty, to a large extent the precise premium needed in any given year is unknown. Ordinarily, the MLR would provide an important backstop to a state’s rate review process, so that if an insurer overshoots and implements an unreasonable rate increase, it would ultimately have to pay its enrollees a rebate. But the effectiveness of that backstop depends on the MLR threshold, how it is calculated, and whether the standard is enforced.
In this environment of uncertainty about continued federal enforcement of the ACA, it is important to remember that state departments of insurance (DOIs) are the primary entities that work directly with insurers to ensure compliance with federal and state standards through state laws, regulations, and interpretive guidance. On the MLR front, states can respond to a federal relaxation of MLR standards or enforcement in several ways:
- Maintain current MLR standard. States can reject HHS’s invitation to lower the MLR standard below 80 percent for the individual market. In fact, states could step in and require insurers to maintain a higher one, if they wish. New York, for example, requires individual and small- group insurers to maintain an 82 percent MLR.
- Conduct state-level MLR reviews. Most DOIs currently have sufficient authority to conduct reviews of insurers’ MLR reports and audit MLR- related data. And federal law allows HHS to accept the findings of a state examination of an insurer’s MLR reports and payment of rebates.
- Enact a state-level MLR rebate program. If HHS’s lack of enforcement of the current MLR standards ultimately leads to limited distribution of rebate payments to enrollees, a state legislature could establish a state-level rebate program.
The MLR has been an important check on insurers raising rates without justification. Now, when insurers are more likely to build in the risk of federal policy uncertainty, consumers need to know the MLR is being rigorously enforced. States have the authority to step in where federal regulators may be stepping back.