PPACAs medical loss ratio generates rebates

August 6, 2012
| By Pete Daly |
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Ten insurance companies are sending a total of roughly $13.9 million in rebates to customers in Michigan because they spent more of their premiums revenue last year on administrative costs than allowed under the medical loss ratio requirement in the Patient Protection and Affordable Care Act.

The MLR requires health insurance issuers to spend at least 85 percent of premium dollars on medical care for large group contracts (80 percent for plans covering small groups or individuals), limiting the amount companies can keep for administrative overhead, advertising, salaries, profits, etc.

In Michigan, no large group insurance contract, covering 200 or more people at a company or organization, triggered an MLR rebate, and most of the total rebate amount is going to individual policy buyers.

Healthcare.gov, a federal government website managed by the U.S. Department of health and Human Services, lists the medical loss ratios for all insurers. Blue Cross Blue Shield of Michigan, Grand Valley Health Plan, Priority Health and United Healthcare were all within the required MLR — although some are listed as having spent more than 100 percent of their premium revenue on actual medical services.

Don Hazaert, director of an organization in Lansing called Michigan Consumers for Healthcare, said that “thanks to the (Affordable Care Act), consumers are getting more value for their premium dollars and will benefit from greater transparency and accountability.”

MCH membership includes organizations throughout the state, such as Grand Valley State University Kirkhof College of Nursing. The Business Journal contacted the college and requested comment on the MLR rebates but did not get a response prior to press time.

Scott Lyon, an executive with the Small Business Association of Michigan who deals with employee health insurance issues, said the MLR rebates boil down to “a question of what is the right balance inside an insurance carrier for their administrative costs and profit, versus claims payments.”

“We’re happy that the carriers we’ve aligned with — Blue Cross Blue Shield of Michigan and the Blue Cross Network — are well within the limit. They seem to have the right balance,” said Lyon.

Lyon said he feels the MLR rebates are “largely a non-factor” in Michigan “just because the carriers that we have doing business here have always kept those things in balance.” He said he believes the MLR percentages are fair, adding that if he was negotiating a group contract with a carrier that wanted to keep more than 20 percent of premium revenues for administrative costs, profits and overhead, “I would negotiate for a lower amount.”

The MLR requirement “has taken on a bit of a political twist, as you might imagine,” said Jim Kenyon, an executive at the Hylant Group office in Grand Rapids. Hylant, with 15 offices around the Midwest, is among the largest privately held insurance brokerage firms in the United States, according to its website.

Kenyon said many people think insurance companies are “taking advantage of the consumers, making obscene profits. Well, that’s obviously not the case in Michigan. It might be the case in other states.”

He added, however, that he thinks it may be “a little bit the case in some of the individual” coverage markets.

Hazaert is also touting a recent report from Allan Baumgarten, a Minnesota health market analyst, which he said demonstrates “the HMOs in Michigan had their most profitable year ever last year, despite the changes already brought about by the Affordable Care Act.”

Baumgarten’s report states that Blue Care Network was the most profitable HMO with a 6.2 percent margin of profit last year. All the HMOs together had an average margin of profit of 2.6 percent of operating revenues.

Kenyon said he would put Baumgarten’s report “in the interesting column, but I’m not sure what to take away from it in the long term, because neither Blue Care Network nor Priority Health failed the MLR tests. Neither of them had to issue any rebate checks.”

Kenyon noted that insurance carriers operating in Michigan have to receive authorization for rate increases from the Michigan insurance commissioner. “We’ve been doing some good things in our state for a number of years, and other states haven’t done that. So I think we are fortunate to have a little bit of that oversight taking place already.”

Dan Urich is concerned because insurance carriers are “getting out of the health insurance business” in Michigan due to government restrictions. Urich is an executive at J.B. Harrison Insurance Agency in Grand Rapids and president of the West Michigan Association of Independent Agents. However, he said his comments are his opinions alone and not made on behalf of the agents’ association.

“There are fewer health insurance companies,” he said. “I think this all came around from Obamacare.”

“I think we are going toward socialized medicine — which is what Canada has,” said Urich. He added that the result will be that it will take longer to get service from medical providers. He said that when surgery is required for a Canadian patient, “a lot of those people come to Michigan because they can get it done quicker.”

He also said he understands that the medical loss ratio for individual and small group insurance plans is going to increase to an 85 percent minimum by 2013.

Although he conceded that there may be some cases where carriers haven’t been fair with their customers and perhaps overcharged them, fewer carriers will mean less competition, and that will be to the customers’ disadvantage.

Smaller margins of profit for the insurance carriers, he said, will also make commissions smaller for agents. “The commissions have taken a significant drop and some agents have said, ‘I can’t afford to do that anymore. If I only get 3 or 4 percent instead of 8 or 9, how can I afford to spend my time on that?’” said Urich.

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