Medical Loss Ratio Bites Insurers

On December 2, the Department of Health and Human Services released its rule on how health insurers comply with the Affordable Care Act’s medical loss ratio (MLR) provision. The rule is effective on January 1, 2012. Before you flip over to YouTube to watch the latest in cat cuteness, consider this headline from a contributor at Forbes : “The Bomb Buried In Obamacare Explodes Today-Hallelujah!

The MLR was one of those hotly debated provisions during the health reform fight two years ago that by now the public has forgotten, but insurers never did. The MLR requires health insurance companies to spend 80% of consumer premiums (85% for large group insurers) on actual health care for its customers. Insurers that fail to meet the standard each year will have to rebate their customers the amount by which they underspent on providing medical care. Plus, Bloomberg  reports, “Consumers won’t have to pay taxes on rebates they get from health insurance plans that violate spending rules in President Barack Obama’s 2010 overhaul.” Forbes  contributor Rick Ungar argues that the MLR ruling will kill off large parts of the for-profit health insurance business:

Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid. If they could, we likely would never have seen the extraordinary efforts made by these companies to avoid paying benefits to their customers at the very moment they need it the most.

Furthermore, the HHS ruling last week prohibits insurers from counting sales commissions for health insurance brokers and salespeople as a ‘medical expense’ when reporting their MLRs. Those count as administrative or overhead expenses, as they should.

Can the health insurance industry adapt? Ungar writes,

Not a chance-and they know it. Indeed, we are already seeing the parent companies who own these insurance operations fleeing into other types of investments. They know what we should all know – we are now on an inescapable path to a single-payer system for most Americans and thank goodness for it.


If you thought that the Obama Administration chickened out on pushing the nation in the direction of universal health care for everyone, today is the day you begin to understand that the reality is quite the contrary.

But don’t be too sanguine about that. The Hill  reports that 2012 will bring a renewed push by Republican opponents to dismantle health care reform piece by piece. And rules written under one president can be unwritten — or go unenforced — by another. How long the new HHS rules have to send down roots will depend on what happens on Tuesday, November 6, 2012.