Medical Loss Ratio

I haven't written about the ACA's Medical Loss Ratio (MLR) rule in awhile. I was pretty obsessed with it a few years ago, and I still check in on it from time to time, but otherwise I've mostly moved on to other things.

HOWEVER, the MLR rule is still pretty important...and while the dollar amounts I'm about to discuss aren't much more than a rounding error in terms of federal budget numbers, it's possible that the could play a small role in helping get a much larger project moving forward.

Before I begin, here's a short refresher on how the MLR rule works:

CMS Logo

I haven't written much about the ACA's Medical Loss Ratio (MLR) program this year. Here's a very simplified explainer:

Ever since the ACA went into effect in 2011 (3 years before newly-sold policies had to be ACA compliant), to help reduce price gouging, insurance carriers have been required to spend a minimum of 80% of their premium revenue (85% for the large group market) on actual medical claims.

Put another way, their gross margins are limited to no more than 20% (or 15% in the large group market). Remember, that's their gross margin, not net; all operational expenses must come out of that 20% (15%). The idea is that they should be spending as much of your premium dollars as possible on actual healthcare, as opposed to junkets to Tahiti or marble staircases in the corporate offices, etc. Anything over that 20% (15%) gross margin has to be rebated to the policyholder.

Back in December, Congress passed, and Donald Trump signed, a $1.4 Trillion federal spending package which included, among other things, the permanent elimination of several taxes which had been established to help fund the Affordable Care Act:

The Cadillac Tax: As Newsweek reported in 2017, the so-called "Cadillac tax" would have capped the tax deductions individuals could claim based on their health insurance benefits. It would have imposed a 40 percent excise tax on employer-sponsored plans that exceeded $10,000 in premiums per year for a single person or $27,500 for a family. The Cadillac tax was set to take effect in 2022.

For weeks now, my blog posts have been overwhelmed by my state-by-state analysis of the preliminary 2020 ACA individual market rate filings. With the addition yesterday of Illinois, Hawaii, Iowa, Kansas and especially Florida, I've now accounted for over 75% of the total ACA Individual Market nationally.

I still have a dozen states to go, including large ones like Texas and Georgia, but barring some devastatingly huge rate hikes, the picture is clear: Average unsubsidized 2020 ACA individual market premiums will only be going up an average of less than 1% nationally.