Health Insurer Responses to Medical Loss Ratio Regulation

Research Report

Health Insurer Responses to Medical Loss Ratio Regulation

Increased Efficiency and Value to Consumers


One of the Affordable Care Act’s early market reforms, starting in 2011, required health insurers to spend 80 percent or more of premiums on medical claims or quality improvement in aggregate. Using data submitted by insurers from 2010 to 2012, we found that the new regulations on medical loss ratios (MLRs) led to substantially higher MLRs in the individual market overall, driven by increases among insurers who started with MLRs less than 80 percent in 2010. The increase in MLR occurred in part through increasing the amount of claims paid for health care, while holding premium growth in check, and represented increased value for consumers. In addition, the MLR rule created an incentive for insurers to reduce their administrative overhead costs as a share of premiums. We find evidence suggesting insurers did indeed become more efficient, with minimal disruption to the market.
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