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New Data Shows Where Your Health Insurance Premium Dollar Goes

By Brian Tajlili | August 20, 2015 | Healthy Lifestyle, Industry Perspectives, Insurance Education

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Since the start of the Affordable Care Act, BCBSNC has exceeded the law’s requirements for spending on medical care for customers. That streak continues with our report for 2014.

Out of every health insurance premium dollar collected across our various lines of business, we spent an average of 87.3 cents on medical care last year. In all, we exceeded the requirement for what’s known as medical loss ratio (MLR) by $365 million in 2014.

The figures are important because they are a concrete way to show consumers what value they’re getting out of their health plan. Under the ACA, insurers are required to spend at least 80 percent of their premium revenue on medical care and activities to improve the quality of care that their customers receive.

While we exceeded the requirement, insurers that don’t are required to offer rebates to customers. Collectively, insurers paid out $332 million in rebates last year under the ACA’s MLR requirements, according to the Centers for Medicare and Medicaid Services (CMS). The payments benefitted 6.8 million consumers, CMS said.

The MLR calculation for the prior year also offers a quick way to determine if an insurer’s rates in that year were too high to deliver the minimum value required under the MLR standard. If an insurer meets or exceeds the standard, it essentially means their rate action the prior year was justifiable.

Our MLR of more than 87 percent is at the high end of the expected range among insurers nationally. According to projections reported by the Kaiser Family Foundation, most MLR calculations will be between 81 percent and 87 percent for 2014.


MLR and Rate Filings

Insurers were required to submit their MLR reports to CMS by July 31. Later this year CMS will release a report on insurers required to issue rebates to customers, and in the meantime, more insurers might decide to make their MLR public for 2014 business. The calculations come as regulators in many states are preparing to rule on rate filings for individual insurance coverage for 2016.

We reported our revised 2016 rate filing two weeks ago. Our filing requests an average increase of 34.6 percent for individual customers under age 65 with an ACA plan.

While that figure is higher than our initial rate filing in May, it still assumes that we’ll be above the 80-percent threshold, as we have been every year of the ACA. In fact, we sustained an operating loss of $123 million on our ACA business in 2014. Our 2016 rate filing attempts to strike a balance between keeping premiums affordable for consumers — who may be eligible for federal subsidies to help offset the cost through the ACA marketplace — and keeping our ACA business sustainable.

Breakdown by Line of Business

The ACA’s requirements are also broken down by type of business. The 80-percent rule applies to individual coverage, small groups and student groups. For large employer groups, the minimum is 85 percent.

Our breakdown for 2014 is as follows:

  • Individual customers: 88.3 percent
  • Small group: 87 percent
  • Large group: 91.3 percent
  • Student groups: 90 percent

Overall, insurance companies are more frequently meeting or coming closer to meeting their MLR requirements across all lines of business. Refunds to consumers have dropped substantially since 2011, the first year of the requirement, when about $1 billion was refunded.