final mlr report 07-22-2014

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  • 8/12/2019 Final MLR Report 07-22-2014

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    Consumers Benefitted From 80/20 Rule in 2013

    The 80/20 Rule

    The 80/20 rule of the Affordable Care Act offers important consumer protections to 78 million people

    nationwide who have health insurance coverage through their employer (known as the group market)

    or purchase their own health insurance in the individual market. The 80/20 rule, also known as theMedical Loss Ratio (MLR) rule, generally requires health insurance companies in the individual and small

    group markets to spend at least 80 percent of premium dollars they collect on medical care or activities

    to improve health care quality, and 85 percent in the large group market. Companies report their

    premiums and spending by market (individual, small group, and large group markets) for each state in

    which they operate. As shown in Figure 1, the percent of consumers insured by companies that met or

    exceeded the MLR standard has risen each year since the 80/20 rule went into effect in 2011.

    Refunds

    If insurance companies do not meet or exceed the 80 or 85 percent MLR standard, they must pay

    refunds to make up the difference. In the first three years of the MLR program, individual and employer

    plan enrollees received or will receive over $1.9 billion in refunds. In this year alone, 6.8 million

    consumers across all states and markets will receive over $330 million in refunds, with an averagerefund value of $80 per family. Health insurance companies are required to provide the 2013 refunds by

    August 1, 2014 in one of the following ways: as a check in the mail; a reimbursement to the account that

    was used to pay the premium; a direct reduction in their future premiums; or, if the consumer bought

    insurance through their employer, the employer must provide the refund in one of these three ways or

    apply the refund in a manner that benefits its employees.

    Premium Savings

    While refunds serve as a stopgap measure to ensure that consumers receive the required value for their

    premium dollars, consumers are also saving money upfront because companies are charging lower

    premiums and operating more efficiently than they would have in the absence of the 80/20 rule and

    other health care reforms. If insurance companies had maintained their 2011 ratios of premiumsrelative to the cost of medical care, consumers would likely have paid an estimated $3.8 billion in

    additional premiums in 2013. Figure 2shows the total savings by market, broken down into refund

    savings and estimated upfront premium savings. Since 2011, consumers have saved an estimated $9

    billion.

    Administrative Expenses

    Another way to measure the value for consumers is to look at how insurance companies are spending

    money on expenses other than medical claims and quality improvement activities. A smaller portion of

    premium dollars directed to administrative costs and profit indicates that consumers are receiving a

    higher return on their premium dollars. Figure 3shows that the percent of premium dollars allocated to

    administrative costs and profit dropped in all markets since the introduction of the 80/20 rule. The

    largest decline is in the individual market, where profits and overhead spending as a percent of premiumdropped from 15.3 percent in 2011 to 11.7 percent in 2013. In the group markets, administrative

    spending increased slightly from 2012 to 2013, but shows a net drop from 2011 to 2013.

    For more information on 2013 MLRs and refunds by state and by market, visit

    http://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html .

    http://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.htmlhttp://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.htmlhttp://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html
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    62.3%

    73.7%

    81.2%82.8% 83.1%

    84.5%88.6%

    94.2% 95.8%

    60%

    65%

    70%

    75%

    80%

    85%

    90%

    95%

    100%

    2011 2012 2013

    %ofEnrollees*

    Figure 1: More Enrollees Receive Required Upfront Value

    Individual

    Small Group

    Large Group

    *Enrollees covered by insurance companies that met or exceeded the MLR standard in the respective

    state and market.

    *Estimated premium savings are calculated relative to 2011, the first year of the 80/20 rule and data

    collection.

    Figure 2: Consumers Save$4.1 Billion in 2013

    $4,500

    $4,000 $332$504

    )$3,500

    sn$3,000illio

    M$2,500in(sg

    $2,000 $3,850$128 $3,440

    vin$1,500 $109

    Sa $82

    $1,000 $192 $203 $122$1,690

    $1,491

    $500 $1,208$980 $970 $1,093$953$399 $290 $403

    $02011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013

    Individual Small Group Large Group All Markets

    Refunds Estimated Premium Savings*

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    15.3%

    17.4%

    11.2%13.1%13.4%

    16.1%

    10.3%12.0%11.5%

    16.4%

    10.7%12.2%

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    18%

    20%

    Individual Small Group Large Group All Markets

    %ofPremium*

    Figure 3: Overhead Spending Declines

    2011 2012 2013

    *Values reflect reported administrative costs and profits as a percent of premium.