Medical-loss ratio as medical gain?

Understanding the potential impact on health-care consumers and providers of medical loss ratio (MLR) reimbursement

Health-care reform continues to chug along on pace, amid legal challenges and political wrangling. By now many Americans have become familiar with the acronyms EHR and EMR—electronic health records and electronic medical records, aka computerized charts. Bubbling to the forefront nowadays is another abbreviation: MLR.

MLR stands for medical loss ratio. It’s a provision of the Patient Protection and Affordable Care Act (PPACA) that limits the portion of insurance premiums that insurers can spend on costs not directly related to the delivery of medical treatment. Exceed that amount, and the insurer is required to refund the excess to customers.

The White House, via, summarizes the MLR provision thus:

“To ensure premium dollars are spent primarily on health care, the law generally requires that at least 85 percent of all premium dollars collected by insurance companies for large employer plans are spent on health-care services and health-care quality improvement. For plans sold to individuals and small employers, at least 80 percent of the premium must be spent on benefits and quality improvement.

“If insurance companies do not meet these goals, because their administrative costs or profits are too high, they must provide rebates to consumers.”

As with many laws, the devil is in the details—and here is where unintended consequences start to arise.

Last month, the U.S. Department of Health and Human Services released regulations regarding which insurance-company expenditures qualify as “benefits and quality improvement.” Not surprisingly, several states balked at them. Kansas and Oklahoma sought adjustments, which the White House denied, and earlier this month Texas petitioned to delay the MLR provision entirely.

“Unfortunately, we don’t know how the accounting is going to work,” said Mike Wiltermood, chief executive officer of Enloe Medical Center.

What’s the likely upshot? John Dahlmeier, who runs the Dahlmeier Insurance Agency in Chico and Oroville, has a succinct answer: “Roll the dice and see what the courts come out with. [The law] was written so loosely that there’s a lot to define.”

Dr. Marcia Nelson is a Chico

physician who sees patients at Mission Ranch Primary Care. She, too, has a wait-and-see perspective on the medical loss ratio.

“The MLR element of PPACA reads well from a theoretical point of view,” Nelson said. “Using more of the money patients or employers spend on premiums to actually deliver quality care sounds inherently logical.”

John Dahlmeier

photo by evan tuchinsky

But …

“The impact may be to reduce the number of plans available in the for-profit market because only those with efficient practices or very large economies of scale will be able to adapt to MLR requirements. Speaking as a family physician in private practice, my hope is that patients get the most value for the money invested in their insurance, and that insurance companies don’t choose to leave a market that is perceived to be less profitable, rather than improve their internal practices.”

That is a major concern in the North State. Wiltermood explained that hospitals and medical groups in smaller communities have less bargaining power than in larger cities.

“For medical providers, what that [MLR provision] probably means is nothing,” Wiltermood said. “Our biggest problem at Enloe Medical Center and for physicians in our community isn’t that insurers make a lot of money—it’s that reimbursements aren’t consistent. Larger groups can drive larger rates of reimbursement, and insurers can make up for it by making it harder for smaller hospitals and physician groups to negotiate.”

Dr. Roy Bishop, CEO of Chico’s Argyll Medical Group, has experienced this first-hand. Heading into 2008, Blue Cross and Blue Shield gave Argyll new payment rates that Bishop deemed too low. Negotiations hit a stalemate until Argyll informed patients that those insurers’ PPO plans would no longer be accepted. In time for the new year, the insurance companies upped their offers.

Naturally enough, Bishop doesn’t anticipate any increases in reimbursements based on the MLR provision.

“It is interesting—sad—that [insurers] regard paying for care as a ‘medical loss’ in their world,” Bishop said. “If the rules mean that insurers increase their miserly payments to primary care, then it would be good; unfortunately, we cynical providers doubt that it will do that and continue to face erosion of the viability of our practices due to rising costs and falling reimbursements.

“If it stops the fall in reimbursements, it will be helpful, but most providers are now at the point where any further cut in reimbursements from private insurers or Medicare would simply lead us to quit [taking insurance plans] and go cash-only.”

The MLR provision of the health-care act does offer insurers an alternative to increasing payments for medical care: rebates. Some companies already have issued checks to customers.

“This year I personally, and Argyll Medical as an employer that provides health insurance for its employees, did get a rebate check from Blue Shield, given voluntarily by them because they didn’t spend enough on medical care,” Bishop said. It was a significant amount: 2 percent of premiums paid.

Dahlmeier says California insurance companies are in compliance with the law. Both Bishop and Wiltermood see rebating customers as the likely direction insurers will go.

“It’s a rational business model to reduce premiums,” said Wiltermood. “If they’re going to make use of [the MLR provision to their benefit], they’re going to do it to be more competitive—to reduce the cost to the consumer—and see if it gives them an advantage in market share.”

Of course, MLR may well be a moving target, along with other aspects of the PPACA.

“It all comes together in this difficult-to-understand series of events,” Wiltermood said. “I think it’s going to play out for years, with constant attempts to tweak the system. É All we can do is wait and see how the pendulum swings.”