Friday, May 20, 2011

Do Waivers Disrupt The Medical Loss Ratio Provisions?

The Patient Protection and Affordable Care Act (ACA) allows the Department of Health and Human Services to adjust the medical loss ratio (MLR) standard for a state if it is determined that meeting the 80% Medical Loss Ratio standard may destabilize the individual market. In order to qualify for this adjustment, a state must demonstrate that requiring insurers in its individual market to meet the 80% MLR has a likelihood of destabilizing the individual market and result in fewer choices for consumers.

Medical loss ratio is calculated as the cost of health care services provided as a percentage of premium revenues. In general, the higher the medical loss ratio, the more an insurer spends on claims reimbursements and the less it spends on administration and marketing, or retains as profit.

Three states now have been granted waivers: Maine, New Hampshire, and Nevada, and nine other states have requested waivers. Does this dilute the MLR provisions too much? Judge for yourself.


The Maine Bureau of Insurance requested an adjustment of the 80% MLR to a 65% MLR standard. As of September 2010, nearly 37,000 Maine residents obtain health insurance coverage through Maine’s individual health insurance market. One insurer, MEGA Life & Health Insurance Company, which covers more than a third of the market or approximately 14,000 Mainers, has said it may exit the market if required to meet this higher standard in 2011 and 2012. According to the State, since MEGA offers lower cost policies in Maine’s individual market, if the insurer left the market, consumers may not be able to purchase new policies of comparable price and benefit design.

For these reasons, in March 2011 HHS accepted the Maine Bureau of Insurance request for an adjustment to 65% for 2011 and 2012. HHS will allow the adjustment to continue through 2013, as Maine requested, if the State provides additional data at the end of 2012 to support a third year of the adjustment to 65%.

New Hampshire

The New Hampshire Insurance Department requested an adjustment of the 80% MLR to a 70% MLR standard for 2011, 2012, and 2013.

Based on the information provided, including the 2010 MLR data, HHS states that it was “reasonable to establish an MLR standard at 72% for the year 2011, an MLR standard of 75% for 2012, with the 80% standard to apply in 2013. An adjustment to the MLR standard in 2011 and 2012 helps to ensure a stable marketplace, while preserving the intended benefits of the MLR provision for consumers. This approach, which creates a glide path for compliance with the 80% standard, balances the interests of consumers, the State and the issuers in accordance with the principles underlying the MLR provision.”


The Nevada Department of Insurance requested an adjustment of the 80% MLR to a 72% MLR standard for 2011.

According to HHS, as of 2010, more than 86,000 Nevada residents obtained health insurance coverage through Nevada’s individual health insurance market. Two of Nevada’s biggest issuers, Golden Rule and Aetna, insured a combined total of 21,652 enrollees, which constitutes 24% of the individual market. The large impact that an 80% MLR standard would have on Golden Rule’s and Aetna’s profits in Nevada suggests a sufficiently high risk that these two issuers would withdraw if the 80% MLR standard is implemented immediately. A withdrawal by these two issuers could make it difficult for their 21,652 enrollees, particularly those with pre-existing conditions, to obtain alternate coverage. Due to these issuers’ relatively large market share, their withdrawal could also lead the remaining issuers to reduce benefits and raise premiums, which would adversely affect all Nevada residents who obtain coverage through the individual market.

However, seven of Nevada’s top ten issuers are expected to have 2011 MLRs above the 72% requested by the DOI, and at 68 and 70%, Golden Rule and Aetna are fairly close to the DOI’s proposed standard. Furthermore, an adjustment to a 72% standard would deprive consumers of a substantial amount in rebates. Increasing the adjustment from 72% to 75% would reduce the loss of rebates to consumers by $1.1 million, while still providing issuers with low MLRs an opportunity to improve the efficiency of their operations.

For these reasons, HHS has determined to adjust the MLR standard in Nevada to 75% for 2011.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform implementation and other recent developments in employee benefits, just click here.


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