MLR to Mean Greater – and More Interesting – Disclosure

Much of the debate over the Patient Protection and Affordable Care Act’s medical loss ratio provisions have focused on what expenses are to be considered claims and quality improvement spending, which are to be treated as administrative costs, and what carrier expenditures should be removed from the MLR calculation altogether. This blog alone has dozens of posts touching on the topic.

One of the primary goals of the PPACA’s medical loss ratio provisions is to lower premiums. The health care reform law requires individual and small group carriers to spend at least 80% of the premium dollars they take in on claims and improving the health of their members – and requires large group coverage to spend 85% of premium dollars on those expenses. The likelihood of this happening is, to put it politely, extremely low. Back in 2007 when California Governor Arnold Schwarzenegger proposed a similar provision, I pointed out some of the misconceptions surrounding MLR targets and cost.

But there is likely to be one revelation that will result from the PPACA’s medical loss ratio requirements. There will be greater transparency concerning how carriers spend their money – all carriers – than there has been in the past. While publicly traded insurers have been required to disclosed significant information, how it’s organized and presented is of more use to investors than policy analysts. And non-profit or private carriers have been subject to far fewer disclosure requirements. And those disclosures are subject to rules that vary from state-to-state. All of this makes comparisons across carriers and markets challenging.

All that is about to change thanks to the Patient Protection and Affordable Care Act and, specifically, the MLR provisions in the health care reform law. I realized this after reading Health Affairs excellent brief on the medical loss ratio provision published in HealthAffairs and brought to my attention by Chris Conover (publisher of the U.S. Health Policy Gateway blog. (Both HealthAffairs and the blog are featured on this site’s Health Care Reform Resources page.)

The HealthAffairs brief reminded me of a minor provision in the PPACA I’d forgotten about: although the medical loss ratio requirements only take effect on January 1, 2011, the law calls for a “dry run” to test out the system. Once the medical loss ratio regulations are final (the MLR rules were developed by the National Association of Insurance Commissioners, but must be certified by the Department of Health and Human Services) carriers will complete the various forms describing their 2010 spending. Assuming these reports are made public, they’ll enable the first true apples-to-apples comparisons among carriers. What are their current medical loss ratios? How much is being spent on quality improvement programs? What percentage of premium is passed on to brokers in the form of commissions? The list goes on.

Transparency and disclosure have been heralded as a “disinfectant” in politics. The results, as the $4 billion+ spent on the mid-term elections underscore, are questionable. Nonetheless, in most situations, most of the time, disclosure does tend to help keep people and corporations on, well, if not the straight-and-narrow, then the straighter-and-narrower.

I can’t predict what we’ll learn from the disclosure resulting from the implementation of the PPACA’s medical loss ratio requirements. But I’m willing to bet it will be interesting.