Assessing the Financial Performance of Health Insurers Paying a Rebate under ACA

Michael McCue

Abstract


Purpose: Affordable Care Act (ACA) requires health insurers across the three major commercial markets of individual, small group, and large group to pay a regulated percentage amount of their premium dollars paid out in medical expenses and quality care improvement activities. This law is referred to as “Medical Loss Ratio (MLR) Regulation. The aim of this study is to conduct a descriptive analysis of the financial performance of health insurers that paid rebates compared to health insurers that did not pay a rebate from 2012 to 2013. This analysis was also conducted within for-profit vs. non-profit ownership as well.
Methods: The study identified 2,111 credible insurers in 2013 with 21 percent paying a rebate and 1,940 credible insurers in 2012 with 23 percent paying a rebate. The study applied a non-parametric approach, specifically the median test, to assess the difference in the median values of each financial performance ratio by rebate vs. non-rebate insurers as well as within ownership categories.
Results: In 2012 and 2013 within the individual market, rebate health insurers generated a profit margin of over 5 percent compared to an operating loss position for non-rebate health insurers. For the small and large group markets, rebate insurers earned profits in excess of 6 percent for both study periods while non-rebate insurers earned profit margins between 1 to 2 percent. In addition, for-profit rebate insurers had higher profit margins than non-profit margins within the individual and small group markets.
Conclusion: Rebate insurers had significantly higher administrative cost ratio for each year and higher profit margin. Within the ownership categories, the majority of insurers that did not comply with MLR regulation and paid a rebate were for-profit. Therefore for-profit entities place a greater value on profitability. One reason may relate to the fact that over 60 percent of these insurers were affiliated with publicly-traded insurance companies, whereby there is greater financial pressure from stockholders and analysts to maximize profitability, especially within the short-term. A second reason may stem from the uncertainty that corporate owners face in finding the right balance of maintaining a regulated profit position and complying with the regulation of the law.


Full Text:

PDF

References


Center for Consumer Information & Insurance Oversight (CCIIO). (2015, July 15). Rate Review Data. Retrieved from http://www.cms.gov/CCIIO/Resources/Data-Resources/ratereview.html.

Department of Health and Human Services; Health Insurance Insurers Implementing Medical Loss Ratio (MLR) Requirements Under the Patient Protection and Affordable Care Act, 75 (230) Federal Register (December 1, 2010) (to be codified at 45 C.F.R. pt. 158). Retrieved from http://www.gpo.gov/fdsys/pkg/FR-2010-12-01/pdf/2010-29596.pdf.

Robinson, J. C. (1997). Use and abuse of the medical loss ratio to measure health plan performance. Health Affairs, 16(4), 176–87.

Spencer, J. & Howatt, G. (2014). Health insurers must pay up or pay back: The Affordable Care Act requires insurers to spend 80 to 85 percent of premiums on patient care. Minneapolis Star Tribune. Retrieved from http://www.startribune.com/health-insurers-must-pay-up-or-pay-back/271440501/.


Refbacks

  • There are currently no refbacks.


©Journal of Health Care Finance