Early MLR rebates and continuity of coverage

The Affordable Care Act (ACA) requires individual market insurers to spend at least 80% of qualified premium revenue on qualified claims and quality improvement expenses over a three year period.  This is the 80% Medical Loss Ratio (MLR) rule.  If an insurer does not meet the 80% threshold, they are required to pay policy holders of the last year of the three year assessment cycle back until the insurer meets the 80% threshold.  If the policy holder has left the insurer, they get a check.  If the policy holder has maintained coverage with the MLR rebate paying insurer in the current policy year, the insurer can either apply the MLR rebate to future net of subsidy premiums or make a lump sum distribution.

Typically, MLR rebates are calculated in July and payments are made by September.

CMS issued new guidance last week that has changed the timeline.  Insurers are allowed to file their reports a few weeks later and make early estimated MLR payments.

CMS will not take enforcement action against an issuer that elects to pay a portion or all of its estimated 2019 MLR rebate in the form of a premium credit prior to September 30, 2020 and in advance of filing its 2019 MLR Annual Reporting Form under the conditions outlined in this bulletin. An issuer that chooses to provide the rebate via a lump-sum check or lump-sum reimbursement to the account used to pay the premium may also pay a portion or all of its estimated 2019 MLR rebate in advance of filing the 2019 MLR Annual Reporting Form,
under the conditions outlined in this bulletin.

This should improve continuity of coverage.

Kaiser Family Foundation is estimating about $2 billion in MLR rebates for the ACA individual market as 2017 was a normal year, 2018 was massively overpriced and 2019 was modestly overpriced. Average expected MLR rebate for the individual market is $420 per person. Over half a year, that is equal to $70 per member per month.

There are hundreds of thousands of individuals who are paying less than $70 per month in net premiums after subsidy. Low premium Bronze plans are quite common across the country and individuals earning just over 150% Federal Poverty Level can purchase the benchmark Silver CSR plan for that amount. Not everyone will receive an MLR rebate. Some insurers still managed to lose money in 2018 with their disruptive to the bottom line business models that de-emphasized competence. Other insurers had worse 2017’s than average. Even if an insurer is paying out MLR rebates, individuals will receive varying amounts as the rebate is a function of the share of total gross premiums that a policy holder paid. This means bigger rebates will go to individuals who bought more expensive plans and who are older as age rating means a 64 year old has three times greater age premiums for the same plan than a 21 year old.

With those caveats, insurers can wipe out several months or the rest of the year worth of net premiums for thousands of individuals who were not buying zero premium plans for this year. This will likely increase continuity of coverage as it becomes very difficult for an insurer to terminate coverage for non-payment of premium when there is no premium to collect. I hypothesize that individuals who are likely to terminate for non-payment of de-minimas premium are likely to be relatively low cost and highly subsidized. So wiping out several months to the rest of the year in net premiums will be a significant enrollment boost for MLR paying insurers as well as a reasonably profitable decision.