Reform Update: Reports say ACA saves consumers billions, but cuts insurers' profits

The Patient Protection and Affordable Care Act saved consumers $1.7 billion on health insurance premiums last year, an HHS report found. Meanwhile, a separate study found that ACA provisions squeezed insurers' profits.

The HHS report cites two provisions directly affecting health plan premiums—a rate review for premium increases that top 10% and the medical-loss ratio standard that caps how much of premium revenue insurers can use for administration, marketing and profits.

In its report Thursday, HHS cites an analysis from the Office of the Assistant Secretary for Planning and Evaluation, which found that in 2012, insurers requested smaller rate increases in the individual and small group markets.

The report said the average rate request in the individual insurance market dropped from 8.1% to 7.1%—a 12% decrease—and in the small group market, from 5.8% to 4.7%—a 19% drop. The data excluded the large group market.

Moreover, since insurers must justify rate increases above 10%, payers submitted fewer requests for large premium hikes. Only 26% of rate requests topped 10% last year, compared with 43% in 2011, the report found.

The analysis estimates that rate reviews saved consumers $1.2 billion on their premiums compared to the rates that insurers originally requested.

HHS collects data on premium increases through its Rate Review Grant Program, which awards money to states to review proposed rate hikes in the individual and small group markets.

In addition to the rate review program, HHS calculated that consumers saved another $500 million through the healthcare law's medical-loss ratio provision (PDF), which requires health plans to spend at least 80% of the money they bring in from premiums on medical care and quality improvement activities. In the large group market, the requirement is 85%.

If insurers go above that threshold, they must pay a rebate to consumers in the form of a mailed check, a reimbursement to the account used to pay the premium or a reduction in future premiums. Employers receiving a rebate must apply that money in a way that benefits their employees.

HHS calculates that 77.8 million consumers saved $3.4 billion on their premiums because of the rule, and 8.5 million people received rebates totaling $500 million, or an average of $100 a family.

A separate study in this month's issue of Health Affairs found that the medical-loss ratio standard has had the effect of straining operating margins for insurers, particularly at for-profit companies operating in the individual market.

The study looked at medical-loss and administrative cost ratios in 2010 and 2011—directly before and after the 80/20 rule went into effect.

In the individual market, medical-loss ratios increased 5.5 percentage points—meaning insurers spent 5.5% more of premium revenue on medical care and quality improvement—while the administrative cost ratios declined 2.6 percentage point and operating margins dipped 1.3 percentage points.

The effect was most pronounced at for-profit insurers, which saw their medical-loss ratios increase 7.7 percentage points, with administrative costs and operating margins declining 2.9 and 2.2 percentage points, respectively.

In the large group market, in contrast, operating margins remained in the black, increasing 0.7 percentage points (1.2 percentage points at for-profits) while medical-loss ratios—which were 87.6% in 2010—dropped to 86.9%. But the numbers were not statistically significant.

The conservative Goldwater Institute filed a lawsuit Thursday challenging a state law raising Medicaid eligibility, which passed narrowly in June with the surprising and vigorous support of Republican Gov. Jan Brewer. Opponents of the Patient Protection and Affordable Care Act in Arizona came up short this week in their bid to reopen the state's Medicaid debate with a ballot initiative. The Goldwater Institute filed a complaint in Maricopa County superior court (PDF) against Brewer and Thomas Betlach, the state's Medicaid director on behalf of 36 lawmakers who voted against the Medicaid expansion. The legislation relies in part on revenue from taxes paid by hospitals—which lobbied aggressively for the bill—and the lawsuit alleges that the state Legislature illegally approved it without seeking the two-thirds majority required for tax measures.

The Florida Department of Health won't be going out of its way to help residents find and understand new opportunities for health insurance under the Patient Protection and Affordable Care Act. Citing concerns about personal information that would be gathered during outreach efforts, the Associated Press reports, state officials told county health departments to bar “navigators,” who are armed with federal funding and guidance to help the public enroll in subsidized plans sold in the new health insurance exchange. The local health departments can accept brochures but only hand them out if requested, according to the report. “This program has raised privacy concerns due to the consumer information that will be gathered for use in a federal database,” the agency said in a statement. Leah Barber-Heinz, a spokeswoman for advocacy group Florida CHAIN, responded that the policy “makes no sense.” “With Florida having one of the highest numbers of uninsured people in the country, we need all the help we can get,” Barner-Heinz said.

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