The document summarizes key aspects of the implementation of the Minimum Medical Loss Ratio (MLR) requirement under the Affordable Care Act. It discusses the MLR calculations and adjustments at the state and federal level, how rebates are determined and paid out if the MLR is not met, and some of the impacts on insurance carriers, agents, and brokers. It provides details on the regulatory process between the NAIC and HHS to establish definitions and methodologies.

1. Implementation of the
Minimum Medical Loss Ratio
Timothy Stoltzfus Jost
Washington and Lee University

2. MLR familiar concept
NAIC: “A measure of relationship between A&H
claims and premiums”
Traditionally used by:
investors to track earnings
insurers to set premiums
regulators for rate regulation

3. State guidelines
• NAIC model guidelines, 50% to 60%
• 34 states require reporting in individual
market
• 14 states impose minimums, 50% to 80%
• 20 states impose requirements in group
market
• 6 states require refunds

4. State and federal MLR not the same
• Federal MLR excludes taxes and regulatory
fees from denominator
• Federal MLR includes quality improvement
expenses in numerator
• Federal MLR 2 to 12 points higher than
equivalent state MLR calculations

5. 2718 of the PHSA
• Part of title XXVII of the Public Health Services
Act (HIPAA). (42 U.S.C. s. 300gg-18)
• 2718(a) requires reporting
• 2718(b) requires rebates if MLR less than 80%
in nongroup and small group market; 85% in
large group market

6. 2718 Adjustments
• State may adjust upwards
• HHS may adjust downwards for state if
statutory MLR minimum would destabilize
market
• HHS may adjust for volatility after 2014

7. 2718 Application
• Applies to nongroup, small group, and large
group issuers
• Applies to grandfathered plans
• Does not apply to self-insured; short-term
limited duration plans; or excepted benefit
plans

8. Regulatory drafting process
• NAIC asked to establish definitions and
methodologies
• Subject to certification by HHS
• Methodologies to take into account situation
of small, newer, and different sorts of plans

9. NAIC and HHS process
• Final regulation approved by NAIC on October
27, 2010
• HHS issued interim final rule on December 1,
2010 certifying NAIC rule

10. Aggregation
• Aggregate by individual, small, and large
group markets
• Aggregate by issuer (not plan or policy)
• Aggregate by state
– Multistate employer coverage can be aggregated
in state of employer
– Group health plan with multiple affiliated issuers
can be aggregated
• Mini-med and expatriate coverage separate

11. Denominator
• Premium: All monies paid as a condition of
coverage
• Excludes federal and state taxes and
regulatory fees

12. Numerator
• Includes expenses for quality improvement.
Activities to
– improve outcomes
– Prevent hospital readmissions
– Improve patient safety and prevent medical errors
– implement and promote wellness and health
– Enhance use of data to improve quality
– Quality portion of HIT, accreditation, ICD-10
implementation up to .3%

13. Formula
Incurred claims + quality improvement
_______________________________________
Premiums – taxes and regulatory fees +/- risk
adjustment and reinsurance

14. Credibility Adjustments
• issuers < 1000, not credible
• Issuers 1000 – 75,000, partially credible
• Issuers > 75,000, fully credible
• Adjustments up to 8.3%
• Also adjusted for average deductibles 1000 to
10,000 (up to X 1.736)

15. Mini-med and Expatriate Plans
• Target MLR doubled (40% and 42.5%) for 2011
• For 2012 and following, expatriate plans
doubled, mini-med plans multiplied by 1.75
for 2012, 1.5 for 2013, 1.25 for 2014.
• Student plans may also be treated differently

16. Rebates
• Paid pro rata to enrollees or employers
• Paid by August 1
• Usually by premium adjustments

17. Adjustments (Not Waivers)
• To avoid destabilization of individual market
• 17 states (plus Guam) have requested
• Most requested stepwise adjustment, some
total reduction
• So far six states received adjustments, eight
denied, three still pending.

18. What will the rebates look like?
2010 Data
% of % Median Rebate $ Rebate Member
carriers members MLR millions PMPM months
paying receiving millions
rebate rebate
Individual 14.2 52.9 73.6 978.3 8.09 121
Small 15.7 22.8 82.3 447.4 2.13 210
group
Large 15 14.7 89.4 526.7 1.13 465
group

19. How will Insurers Adjust?
• Reduce administrative costs
• Reduce premium increases if medical costs
continue to moderate

20. How is it affecting agents and brokers?
• Reducing commissions?
• Commissions have increased with premiums
• Some insurers decreasing or changing to
pmpm in recent past
• NAIC study shows decreases in 2011, but
many insurers have not reduced commissions,
some have changed compensation structure
• States with high MLRs have not seen loss of
access to producers

21. Agents and brokers
• Consumers and insurance commissioners value
the services of producers
• Producers believe that the MLR requirement has
reduced compensation
• But why is compensation being cut?
• And what will happen if taken out of premium
(Rogers bill)?
– Will it will increase costs to consumers?
– Will it increase the federal budget deficit
– Will it increase producer compensation?