U.S. health insurance companies pared their expenditures and profits by $3 billion in 2011 and 2012, benefiting American consumers.
Insurers refunded $513 million to customers in 2012, down from $1 billion in 2011. The companies also shrank their profits and the amount spent on marketing, other administrative items and brokers’ fees by $1.4 billion during those years, according to an analysis released today by the Commonwealth Fund.
The rebates and savings are a result of the Affordable Care Act’s medical loss ratio (MLR) provision, which aims to cut health-care costs and ensure that insurance companies work more efficiently.
Enacted in 2011, the provision requires insurers to spend a set percentage of insurance premiums on medical costs and quality improvement, limiting overhead expenses and profits. The ACA dictates that 80 percent of the premiums collected for individual and small-group plans and 85 percent of premiums from plans bought by large employers are spent on items clearly beneficial to consumers.
The new analysis by Commonwealth Fund, a research foundation, also concluded that the provision has not harmed the insurance industry by reducing competition or shrinking coverage options for customers.
While the national analysis focused on earlier years, in Washington state, the insurance market continues to be robust.
The Office of the Insurance Commissioner today released information on proposed insurance rate changes and plans submitted for next year’s individual market. The average proposed rate change is 8 percent — the smallest requested change for the individual market over the past seven years. Additionally, four new companies have submitted plans to be sold through Washington’s Healthplanfinder exchange.
The Commonwealth Fund report, titled “The Federal Medical Loss Ratio: Implications for Consumers in Year 2,” also considered insurers’ profits. It found that earnings decreased by $300 million in 2012 (equal to about 0.1 percent of premiums).
The analysis was written by Michael McCue of Virginia Commonwealth University and Mark Hall of Wake Forest School of Law.
“The Affordable Care Act has changed how health insurance is bought, sold, and managed and, on balance, those changes have produced substantial benefits for consumers without harming insurance markets,” McCue stated in a press release. “In its first two years, the MLR requirement contributed to a significant reduction in insurance administrative costs, a major source of health care cost growth in the United States.”