Aside from perhaps online privacy, there is not a more divisive topic in America than healthcare reform. While the majority of the focus has been on individual Americans gaining, losing, and/or shifting their coverage options, an equally large transformation is occurring within the health insurance industry itself.
One of the most difficult mandates passed as part of the Patient Protection and Affordable Care Act (PPACA) is the Medical Loss Ratio (MLR) mandate that sets minimum ratio of how much carriers must spend on claims expenses compared to premium dollars received. Large group carriers must spend at least 85 cents of every premium dollar on claims, while smaller groups and individuals have slightly more leeway at 80 cents. What happens if carriers do not meet these minimums? They'll be required to distribute rebates to plan members.
With 80+ cents per premium dollar going to claims expenses, carriers are being squeezed to cover administrative costs and still generate profit with the remaining 20 cents. I should stop to note that profit in this industry comes in at 5 percent. To put this in perspective, property and casualty insurance comes in at 10.8 percent and life insurance at 15.5 percent. (Source: IBIS World)
That being said, staying around this range has not been the difficult part. The average MLR has been between 75 - 85 percent without the PPACA. The difficulty is the requirement to hit the MLR almost exactly or risk a downside either way. HealthPlan Services sums it up nicely - ""¦ if the threshold is exceeded, it reduces or even eliminates the limited profits possible under the PPACA. Conversely, if the MLR is too far below the threshold, it triggers the rebate requirement and a process few carrier processes and systems are equipped to manage."Â
What can be done? HealthPlan Services proposes three strategies to address the threshold:
- Downsizing corporate overhead and technology
- Establishing rules and requirements to maintain accurate eligibility and contact information
- Developing the ability to acquire stream of future rebates payments
Not only do these represent good business practices, but they are also definitive steps carriers can take to prepare for the continuing evolution of the PPACA.
Learn how one of the largest health benefits carriers in the United States classified $3 billion in spend, representing 2.6 million transactions from five source systems in four weeks with 97 percent data accuracy.