Medical Loss Ratio (MLR) regulations require individual market insurers to spend 80% of their adjusted premium revenue on claims or quality improvement services. If, over a three year look-back period, an insurer spends less than 80%, they have to send out checks to the people who bought their plans in the last year of the look-back period to make up the difference. Large MLR rebates are likely to occur in the fall of 2019 for the 2016-2018 period. It was predictable (June 2018):
2017 looks to have been a very profitable year for insurers. 2018 looks to be even more profitable. There is a good chance that the 2016-2017-2018 time period will produce several states with an average MLR well below 80% as the first quarter results plus initial 2019 rate filings strongly suggest that insurers in many states overpriced their premiums for 2018
However there is variation as the MLR calculation is at the insurer level and not the state level. I’m working on a slightly longer project to estimate the expected Medical Loss Ratio rebates in Pennsylvania but the 2018 data that was present on the initial 2020 rate filings is interesting due to the variation. 2018 is a high premium level year with low raw and ACA MLRs being common.
| 2018 MLR Calcuations | ||||||
| A | B | C | D (0.008*A) | B/A | (B+D)/(A-C) | |
| 2018 MLR for Pennsylvania Individual Market Insurers competing in 2020 | Premiums | Claims | Taxes and Fees | Estimated QI | Raw MLR | 2018 ACA MLR |
| CAAC | $440,341,537 | $248,270,191 | $63,072,775 | $3,522,732 | 56% | 67% |
| Capital Advantage Insurance Company | $2,577,457 | $1,924,633 | $93,040 | $20,620 | 75% | 78% |
| KHPC | $9,253,018 | $5,676,229 | $26,926 | $74,024 | 61% | 62% |
| First Priority | $105,685,090 | $66,718,288 | $5,626,506 | $845,481 | 63% | 68% |
| Highmark Inc | $10,072,903 | $7,966,069 | $414,633 | $80,583 | 79% | 83% |
| Highmark Choice Company | $40,796,398 | $30,094,250 | $763,732 | $326,371 | 74% | 76% |
| Highmark Health Insurance Company | $161,466,202 | $91,364,203 | $12,332,377 | $1,291,730 | 57% | 62% |
| Geisinger Health Plan | $493,460,297 | $349,829,082 | $36,269,383 | $3,947,682 | 71% | 77% |
| Geisenger Quality Options | $2,319,160 | $1,560,772 | $105,126 | $18,553 | 67% | 71% |
| Keystone Health Plan East | $1,079,731,654 | $709,768,606 | $103,709,776 | $8,637,853 | 66% | 74% |
| QCC Insurance Company | $345,713,052 | $272,647,844 | $39,414,952 | $2,765,704 | 79% | 90% |
| UPMC Health Coverage Inc. | $9,179 | $604 | $370 | $73 | 7% | 8% |
| UPMC Health Options | $842,415,260 | $670,631,775 | $21,579,781 | $6,739,322 | 80% | 83% |
| State Average | $3,533,841,207 | $2,456,452,546 | $283,409,377 | $28,270,730 | 70% | 76% |
The first point is that the raw MLR is almost always going to be several points below the ACA MLR. A quick and dirty rule is to add five or six points to the raw MLR to get close to the ACA MLR unless there are weird tax issues going on.
The second point is to look at the incredible variation, even if we only look at insurers with at least $10 million dollars in premiums. CAAC has a 67% ACA MLR while QCC is running at 90%.
There is significant geographic variation in MLRs. UPMC Health Options (an entity controlled by my former employer) has a dominant market position in the western part of the state and some presence outside of the Philadelphia Metro and Poconos region. Its only Western Pennsylvania competitor is Highmark. Highmark had been tremendously overpriced in the region relative to UPMC and had very little enrollment. Even if Highmark (which was a dumpster fire in 2016-2017) needed to send out MLR rebates, there would be very few people in Western Pennsylvania eligible to receive a check.
That is not the case in Central Pennsylvania where Capital Advantage Assurance Company (an entity of Capital Blue Cross) has had incredibly low MLRs. CAAC will be writing some good sized checks in their service area while Geissenger might have some checks to right as well. Keystone Health Plan East (part of Independence Blue) will also be looking at some good size checks along the Delaware River Valley.
Backing this out a bit, MLR rebates will be announced soon. Kaiser Family Foundation anticipates at least $800 million in individual market rebates this year. These rebates will be built on some insurers have an ungodly low MLR in 2018 being balanced by a dumpster fire of 2016. However these rebates won’t be evenly distributed across a state or even within a county. Instead some people will get quasi-random income shocks this fall. And going forward, there will be another round of much larger income shocks in the fall of 2020 as the dumpster fire of 2016 will be replaced in the formula by a slightly overpriced 2019.
There will be incredible variation.
I'll be Frank
I assume if the Courts invalidate the whole ACA then the insurers get to keep these profits?
David Anderson
@I’ll be Frank: Ask the lawyers, I don’t know.