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Reform law aiding insurance consumers: report


By Rich Daly
Posted: December 5, 2012 - 12:01 am ET
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A new report estimated insurance consumers benefited from $1.5 billion in either rebates or reduced costs last year, due to requirements of the healthcare overhaul. But insurers warned that money could have funded anti-fraud and quality-improvement programs.

Research supported by the Commonwealth Fund, which backed the Patient Protection and Affordable Care Act, concluded that the law's medical loss-ratio requirements implemented in 2011 provided big savings—mainly in the individual insurance market.

Individual market policyholders had “substantially reduced premiums” due to the law's requirement that insurers spend at least 80% of premium dollars on direct healthcare or quality-improvement activities, or else pay a rebate to their customers, according to the report. Those requirements led administrative costs to drop in 39 states, medical loss ratios to improve in 37 states, and operating profits to fall in 34 states, according to the report.

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“This report is encouraging, as it demonstrates that these new rules are improving value for people buying health insurance on their own, which has traditionally been very challenging,” Sara Collins, a vice president at the Commonwealth Fund, said in a news release.

The law's administrative strictures appeared less successful in the small- and large-group markets, which had some lower administrative costs but also increased profits instead of passing those savings along to policyholders.

In the small-group market, administrative costs were reduced by $190 million, profits increased by $226 million, while the medical loss ratio remained at 83%—unchanged from 2010. Similarly, insurers in the large-group market reduced administrative costs by $785 million while increasing profits by $959 million and keeping their medical loss ratios at 89%—unchanged from 2010.

However, the MLR requirements, according to insurers, likely have carried unintended consequences. Because the requirements cap not only health plans' profits, salaries and marketing costs but also their anti-fraud, quality-improvement and other needed initiatives, the overall healthcare sector will suffer because of them.

“Penalizing health plans for investing in these types of initiatives is the wrong approach,” Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said in a written statement. “All participants in the healthcare system should be incentivized to continually innovate and develop new ways to improve care for patients and lower healthcare costs.”


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