Minimum Loss Ratio (MLR) Requirement #Obamacare

This is a rather interesting bit of information – The Minimum Loss Ratio Requirement means that if an insurance company doesn’t spend a certain amount (80%-85%) of the premium you pay directly on health care, they will have to refund a portion of the premium to the insured.  Now, I HIGHLY DOUBT they will have any trouble spending all of our money on health care because so many people will start to over-use their health care once coverage is mandatory, but if we start having trouble getting access to health care, like the Canadians, then it is possible that our premiums may not go directly to care, but to auxiliary medical things like prescriptions, that we take while we wait to see a surgeon.  This snip-it (below) also mentions the loss of expensive things for the insurance company like fraud protection which is an administrative expense.  Small insurance companies won’t be able to ‘play the game’ and will have to bow out leaving only a few insurance companies to monopolize.

From the website:


ObamaCare includes a minimum loss ratio requirement (MLR) for health insurance companies.  The MLR provision requires companies that sell individual and small group insurance to pay out 80 percent of their premiums in medical care, and companies that sell large group health insurance to pay out 85 percent of their premiums in medical care.  If companies fail to meet the MLR, then those companies would be required to refund part of the premium to their customers.  While providing loss ratio information to customer may improve disclosure and transparency, writing and defining minimum standards into law will impact the cost of health insurance and the types of plans available.      

The Obama administration charged the National Association of Insurance Commissioners (NAIC) with developing MLR recommendations.  On October 21, 2010, the NAIC approved its recommendations.  The NAIC recommendations defined medical care to include doctor and hospital bills and other “activities that improve health care quality,” such as efforts to reduce hospital readmissions, improve patient safety, reduce medical errors, and certain health information technology.  Clearly, certain insurance company activities are administrative costs, such as employee salaries, and should not count as medical care.  However, other activities, such as fraud-fighting measures, were rejected.         

Issues of Concern

Fewer Choices:  ObamaCare’s MLR requirement will reduce health care choices for all because some small insurance companies will not be able to comply.  North Dakota and Kentucky had high loss ratio requirements, and they had to lower those requirements because they found their high minimum loss ratio requirements reduced health insurance choices for their residents.  Smaller insurance companies have higher start up costs when designing a product, pricing it, and bringing it to the market.  Insurance companies with a larger customer base and with older customers who are frequent health care users will have an easier time meeting ObamaCare’s minimum loss ratio requirement.  Even Kansas’s insurance commissioner expects consumers will have fewer choices once these regulations are finalized.    


Fewer Consumer Protections:  Most, if not all, health insurance companies have antifraud divisions that prevent waste, fraud, and abuse by some providers and some of their policyholders.  Without aggressive antifraud divisions, insurance companies would pay bogus claims, which would cause rates to increase for their honest customers.  Since the MLR regulations do not allow the cost of preventing fraud to count as a medical cost under the NAIC’s definition of “activities that improve health care quality,” some insurance companies may reduce the size or activities of their antifraud divisions as a cost-saving measure.    

4 responses

Dictating the MLR is one of the most egregious aspects of ObamaCare and completely transforms private insurance into a public utility. In addition to arbitrarily defining what can be considered a “medical loss,” it effectively caps the profit margin. One the other end, it compels a fairly high level of spending, which will Increase healthcare inflation.
This is legislation Stalin would love!

The really interesting part of it is the fact that Medicaid runs at a 68% loss ratio, yet they expect private insurance ot run at an 85% loss ratio, and that 15% of “overhead” includes an average of 3.5% of premium tax

in 2007 the medical loss ratios were as follows:

Private Insurance: 87.78%
Government programs: 82.13%

But, here’s the part of the story that you are not hearing…. what are the dollar amounts per enrollee that are being spent on overhead?

Private Insurance: $468.34
Government programs: $1,316.88

Could that be because the government buys $300 toilet seats?

Hi Ralph, out of curiosity, where’d you get those figures? I believe you in that Private insurance is far more efficient AND that it should be returned to it’s traditional role!

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