Rebates And The Medical Loss Ratio Standard: Fill & Download for Free

They are now - and it's one of the key provisions that comes with PPACA (Obamacare). It's called the MLR - or Medical Loss Ratio - and PPACA requires that insurer's spend at least 80% - and in some cases (larger payers) 85% of premium $'s on actual medical care. In effect - they are now regulated at either 15% or 20% - and that 15% or 20% encompasses 3 big categories - not just profits. The catories are:Sales & MarketingAdministrative processesAND profit!Contrary to a lot of misperceptions, payers have never been a really profitable industry. Gross profit margin - even for the biggest of the big - is around 4-5%. That's a small fraction of what the profit margin is for Pharma - or Medical Devices (well into the teens - and in some cases - over 20%).Failing to meet the MLR means that payers will have to rebate $'s to member - and checks have already started going out (as of last month). Those checks are being distributed to individuals - and companies who paid for insurance for their employees.Fairly good NPR radio transcript of the news last week is here:http://www.npr.org/2012/07/27/157500654/affordable-care-acts-insurance-rebates-in-the-mailHealth insurers collect premiums from policyholders and use these funds to pay for enrollees’ health care claims, as well as administer coverage, market products, and earn profits for investors.The Medical Loss Ratio provision of the ACA requires most insurance companies that cover individualsi and small businessesii to spend at least 80% of their premium income on health care claims and quality improvement, leaving the remaining 20% for administration, marketing, and profit.The MLR threshold is higher for large group plans, which must spend at least 85 percent of premium dollars on health care and quality improvement. An analysis by the Government Accountability Office (GAO) found that the majority of insurers with credible claims experience would have met or exceeded the ACA’s MLR rebate standard in 2010 if it had been in effect.iv However, MLR compliance varied substantially by market, with less than half of insurers in the individual market meeting the standard, compared to 70% in the small group market and 77% in the large group market.

Regulation requires each medical insurer to spend at least 80% of premiums directly on claims. It's called the medical loss ratio. CMS details it as follows:“The Affordable Care Act requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement, also known as the Medical Loss Ratio (MLR). It also requires them to issue rebates to enrollees if this percentage does not meet minimum standards. The Affordable Care Act requires insurance companies to spend at least 80% or 85% of premium dollars on medical care, with the rate review provisions imposing tighter limits on health insurance rate increases. If an issuer fails to meet the applicable MLR standard in any given year, as of 2012, the issuer is required to provide a rebate to its customers.”I guess this does not compare each insurer necessarily, but beyond this you could consider companies that are for-profit versus non-profit. For example Anthem Blue Cross is for-profit, while Blue Shield of California is non. Additionally, i believe Blue Shield has a 2% profit goal, in which anything above that amount is given back. Anthem high level execs pocket the profit they make.

I would argue that it's not - in fact - the insurance "system" per se - but rather the healthcare system as a whole. Here's some data relative to the sheer cost of system:Basically, the first graph is per capita per year - the second is what Milliman calculates is the annual medical costs (everything) - for a family of 4 - per year.In effect - every family of 4 is buying this Chevy - brand new - each year - with NO financing:So - we've established that our system is THE most expensive on the planet - by a very wide margin. Now let's look at where that money goes - by category:The top 3 categories - Hospitals + Physicians + Rx = 61% of ALL healthcare spending.Total Admin + Net Cost of Health Insurance? A paltry 7%. Even if you zeroed out the health insurance profits - you wouldn't zero out the category - and the fact is - health insurance isn't a lucrative industry (contrary to popular myth). Here's the "average" insurance "pay" out:... and here's the net profit margin of some of the big payers:All of which is further neutralized by Obamacare - which now caps the profits that payers can make on healthcare insurance. It's called the Medical Loss Ratio (MLR) and effectively mandates that either 80% or 85% of ALL premiums collected by payers MUST be spent on healthcare. That leaves 15% to 20% - for ALL other payer costs - administrative costs, sales and marketing costs, facilities, HR/Payroll costs, Taxes - and then profit. If they exceed the 15% - 20% - for all of these other categories - they must rebate checks to either consumers or employers who are paying the premiums. Checks are rolling: http://hc4.us/OJzbf4So - we've established:We're paying for a system that (at least by Global Standards) is effectively the cost of a Rolls Royce (notice I haven't really referenced the low VALUE we're getting - just the sheer cost).Providers, Hospitals and Pharmaceutical companies account for over 60% of our National Healthcare Expenditure (NHE)Healthcare insurance companies aren't the real culprits in our healthcare system. They're the bureaucratic and administrative gatekeepers - but the system itself is seriously flawed.Assuming you agree with #3 - who are the culprits? Basically these 5 things:The most expensive costs for ACTUAL services as evidenced by this comparison: http://wapo.st/wCHwE6A system that is based on "fee-for-service" - which loosely translates to rewarding VERY high-cost, heroic care for a few - at the expense of low-cost, healthcare for all. Medicare spends $50 billion each year - just on the last 2 months of a patients life. That's more than the Department of Education or the Department of Homeland Security. http://hc4.us/PUhIRfFraud - which some estimates say is as high as $70 billion per year - just through Medicare: http://www.fastcompany.com/magazine/161/medical-fraudEven with the MOST expensive system on the planet - we have about 50 million Americans that are uninsured - and millions more that are "under-insured." That doesn't mean those people don't have healthcare issues - or needs - it simply means we "cost-shift" everything (in every direction) to accommodate those needs. One single example of this is a category of care that doesn't get paid in hospitals. It's called "uncompensated care." Just through the hospital system - that amount is about $40 billion each year. Do the hospitals write that off? No need - they simply "cost-shift" that expense to every OTHER category of service. That way - we all pay for it - as a kind of "hidden" healthcare tax.Tons of waste and abuse - which PricewaterhouseCoopers estimated (in 2008) equaled about 50% of our NHE - or about $1.2 trillion - per year. Here's that chart from their landmark report - The Price of Excess (2008): http://www.pwc.com/us/en/healthcare/publications/the-price-of-excess.jhtmlNow - to (finally) answer your question. Based on all of the above - I wouldn't categorize the healthcare INSURANCE system as bad - but I would absolutely categorize the WHOLE healthcare system as a global embarrassment and national emergency.