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PNHP RESOURCES

ACA has not reduced insurers’ administrative waste

The Affordable Care Act and Medical Loss Ratios: No Impact in First Three Years

By Benjamin Day, David U. Himmelstein, Michael Broder, and Steffie Woolhandler
International Journal of Health Services, Volume 45, Number 1

The Patient Protection and Affordable Care Act (ACA) set limits on insurers’ overhead, mandating a medical loss ratio (MLR) of at least 80 percent in the individual and small-group markets and 85 percent in the large-group market starting in 2011. In implementing the law, the Obama administration introduced new rules that changed (and inflated) how insurers calculate MLRs, distorting time trends. We used insurers’ filings with the U.S. Securities and Exchange Commission to calculate the largest insurers’ MLRs before and after the ACA regulations took effect, using a constant definition of MLR. MLRs averaged 83.04 percent in the three years before reform and 83.05 percent in the three years after reform. We conclude that the ACA had no impact on insurance industry overhead spending.

In sum, the ACA has not decreased private insurers’ overhead, which remains six-fold higher than traditional Medicare’s.

“The Affordable Care Act and Medical Loss Ratios: No Impact in First Three Years” http://org.salsalabs.com/o/307/images/JOH45_1_DayArticle(1).pdf

PNHP press release: “Health law hasn’t cut insurers’ rate of overhead spending: study” http://www.pnhp.org/news/2015/march/health-law-hasn’t-cut-insurers’-rate-of-overhead-spending-study

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Comment:

By Don McCanne, MD

All policy experts agree that the profound administrative waste that is unique to the U.S. health care system needs to be reduced. The architects of the Affordable Care Act (ACA) rejected the solution that would have worked - a single payer national health program - and instead included in their legislation a requirement that private insurers are allowed to keep, for their own administrative costs and profits, no more than 80 percent (individual and small group insurance markets) or 85 percent (large group markets) of the premiums collected. Insurers refer to this percentage that they have to spend on patient care as the medical loss ratio, i.e., paying for health care is a loss to them. We complained that this meager requirement would be ineffective in reducing administrative waste. This study confirms that the medical loss ratio has not changed after three years of implementation of ACA.

Of course, much of the administrative waste in our system is due to the additional administrative burden that the insurers have placed on the health care professionals and institutions. ACA reduced none of this yet added another layer by establishing the health insurance exchanges, or Health Insurance Marketplaces as the Obama administration calls them. Waste, waste, waste.

The percentage of administrative costs for our traditional Medicare program are only one-sixth that of the private insurers. Further, if Medicare were our only payer, the administrative burden placed on our health care delivery system would be only a fraction of what it now is. Obviously, a single-payer, improved Medicare that covers everyone is precisely what we need. Then we could spend that money on patients instead of paperwork.