Medical Loss Ratio

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An Overview of Success and Analysis of Unintended Consequences of ACA’s Medical Loss Ratio Provision


The minimum medical loss ratio (MLR) regulations in the Affordable Care Act is one of the most touted features for consumer protection which aims to improve regulation of private health insurance by guaranteeing that 80%-85% of the premiums dollars is spent on medical care and improvement of healthcare quality. This new provision aims at reducing the administrative costs and profit margins of the Insurance companies by imposing restrictions on healthcare premiums, setting limits on the dollar amount of the premiums being spent and making the Insurance companies who pay less than the minimum “medical loss ratio” to
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Sixty percent of the population has private health insurance, which pays for a third of health care spending [1].Majority of the administrative costs responsible for higher medical costs in United States are attributable to private health insurance[2]. The estimated percentage of of health care dollars spent on administration is between 20% and 30%. These administrative costs are largely related to marketing underwriting,sales commissions,administrative functions,net additions to reserves, premium taxes and profits [3], processes that do not improve medical care. The numerous private insurance plans in the similar geographic locations is causing Hospitals to negotiate payment rates separately with each payor, thereby increasing health care providers’ costs by making processing complicated and time-consuming. Thus,inefficiencies have been raised due to billing and insurance related activities leading to a waste of billions of dollars which are paid by consumers and employers in the form of premiums to private insurance companies. The costs of insurance administration in the U.S. health care system totaled nearly $156 billion in 2007, and that figure is expected to double—to reach $315 billion—by 2018…show more content…
111-148) created the first federal uniform minimum MLR standard. According to this standard, Insurers offering comprehensive major medical policies must maintain an MLR of at least 80 percent in the individual and small-group markets and 85 percent in the large-group market [6]. Insurers failing to meet the minimum MLR standard were required to pay rebates to consumers beginning from 2012 [7]. 85% of minimum MLR applies to Medicare Advantage plans. CMS has proposed MLR rule for Medicaid Care Plan and CHIP in 2015. Proponents of minimum MLR argue that insufficient transparency and competitions in healthcare insurance markets have resulted in excessive administrative expenses and profits. Thus, ACA’s minimum MLR provision will promote transparency, increase consumer value and help in efficiency of insurance

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