Medical loss ratio (MLR) rebates hit a record $1.3 billion in 2019 because health plans spent too little on medical claims and too much on administrative costs. How can health plans leverage their utilization management programs to better balance their medical and administrative expenses?
By Debbie Hill, MSN, RN, Senior Director for Utilization Management and Appeals & Grievances Product Applications at Medecision
Since 2012, millions of Americans have received rebates in the fall from their health insurer. These rebates are refunded portions of premiums that were too high in the prior three-year period. Why? In 2010, the Affordable Care Act (ACA), enacted by the Obama administration, made significant changes to health insurance regulations.
Prior to the ACA, many states had medical loss ratio (MLR) requirements in place, according to the Kaiser Family Foundation, but the laws varied by state. Effective January 1, 2011, all health insurers were required to publicly report “state-level financial data, including income from premiums and expenditures on health care claims, quality improvement, taxes, licensing and regulatory fees. Under the ACA, insurers report their MLR based on state-level data, across all of their plans, in each market segment in which they operate (i.e, individual, small group, and large group,” the Kaiser Family Foundation reports.
The introduction of the ACA’s MLR requirement specified the maximum percentage of premiums that insurers could spend on administrative expenses or earn profits. The law requires that at least 85% of all premium dollars collected by payers for large employer plans are spent on healthcare services and healthcare quality improvement. For plans sold to individuals and small employers, at least 80% of the premium must be spent on services and improvements. If health plans do not meet these goals, they must provide rebates to members.
In 2019, MLR rebates hit an all-time high at a record $1.37 billion because health plans across all markets spent too little on medical claims and quality improvements, based on financial performance data in 2016–2018. Nearly 9 million consumers benefited from rebates, with an average check amounting to $154 (Kansas had the highest average rebate check, at $1,081).
“In 2016, insurers in the individual market were operating with significant losses on average, but by 2017 financial performance in the market had begun to stabilize as premiums rose,” according to a report by the Kaiser Family Foundation. “Insurers in 2018 were highly profitable and arguably overpriced, which is why rebates are so large despite being averaged across less favorable years (2016 and 2017).”
Leveraging Utilization Management
It’s no secret that there’s a lot of waste and unnecessary spending in the healthcare industry, but leveraging utilization management (UM) can help manage costs and ensure medical necessity. Health plans can ensure they are containing costs by reining in some of the extraneous services that were pervasive in the fee-for-service world, but also ensure that healthcare providers are delivering high-quality care and members are experiencing more positive outcomes and fewer complications.
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So how can leveraging UM teams help payers reduce their administrative costs and, in turn, potentially stay below the MLR threshold?
> Prevent patient leakage. Now more than ever, patients feel empowered to “shop” for their own healthcare based on cost and quality. But when a patient chooses an out-of-network provider, health plans still incur costs. How so? If UM teams steer patients to in-network providers, then the health plan covers the services and pays the medical claims, which count toward the 80–85%. However, if patients go out-of-network for their care, then health plans won’t cover the services and there will be no medical claims to pay that count toward a health plan’s total—but plans still incur the administrative costs of handling the claim.
> Improve healthcare quality. Utilization management is about using evidence-based guidelines to determine the medical necessity or the appropriateness of care to make coverage decisions. If UM has an outcome or safety component to it (i.e., not just about reducing the number of claims to pay) such as preventing unnecessary or inappropriate care, then the money spent on UM will count toward a plan’s 80–85%. Patient care is improved and health plans hit their numbers, thus reducing the amount of rebates. Talk about a win-win.
> Allow for automation. Health insurers spend significant amounts of money to manage medical claims—particularly on medical directors or utilization review nurses whose role is dedicated to this job. Automating UM through artificial intelligence and machine learning can reduce administrative costs in a number of ways. The most obvious way is labor—performing UM functions manually requires people and time, and performing UM functions electronically fewer people and less time—allowing UM staff to focus on cases that truly need clinical expertise.
Health plans that invest in UM and leverage these teams to lower costs will see a return on their investment by ensuring that every dollar spent will fall in the right column—medical claims/quality improvement or administrative costs—to avoid paying rebates later.