How Has the Affordable Care Act's Medical Loss Ratio Regulation Affected Insurer Behavior?

Background: Starting in 2011, the Affordable Care Act stipulates that insurers meet the minimum medical loss ratio (MLR) standards or issue rebates. An MLR is the proportion of premium revenues spent on clinical benefits, and must be at least 80% in the individual and small-group markets. Although some insurers have issued rebates, it is unclear whether they also adjusted MLRs and their components in ways to move toward compliance. Objective: To investigate early responses of individual and small-group insurers' MLR-related outcomes to the Affordable Care Act provisions. Research Design: Descriptive and multivariate analyses using 2010-2011 data from the National Association of Insurance Commissioners and other sources. Measures: Outcomes include MLRs, MLR components (claims incurred, premiums earned, quality improvement expenses, and fraud detection/recovery expenses), and administrative expenses. Results: In 2010, only 44.3% of individual market insurers reported MLRs of at least the stipulated level; by 2011, this percentage was 63.2%. Among small-group insurers, 74.9% had 2010 MLRs at or above the stipulated level, with little change in 2011. Individual insurers with 2010 MLRs > 10 percentage points below the minimum exhibited the largest increases in MLRs, with changes occurring through increases in claims and indirectly through decreases in administrative expenses. Conclusions: Early responses to MLR regulation seem more pronounced in the individual versus small-group market, with insurers using both direct and indirect strategies for compliance. Because insurers learned of final MLR regulations only in late 2010, early responses may be limited and skewed more toward greater use of rebates than other adjustments.