Impact - MLRs (Medical Loss Ratios)

I am watching President Obama sign the new health insurance (care) reform bill on CNN. I wanted to share some things I have heard recently that may eventually impact the number of carriers in California selling individual and family plans either through exchanges or privately, or both.

While carriers (insurance companies) can boast an overall MLR (medical loss ratio) above 85%, this number is generally inclusive of all sectors of insurance (large group, small group, individual and senior). However, when small group and individual (especially individual) is segregated out, the MLR often falls well below 80% with an average running about 74% on individual and family health plans.

"MLR" is the ratio of premiums paid in to what is paid out for medical care and wellness. The current reform will require in 2011 that all carriers selling individual and family plans must meet 80% MLR in that market. That means every company selling health plans in California by 2011 must be spending at least 80 cents of every dollar received in premiums on healthcare and related expenses.

I will save the reduction in administrative costs necessary for another post. Needless to say it certainly is probable that reduction in those expenses, including agent commissions, will occur.

My concern is if and how some carriers will be able to meet the new MLR.

I suspect that some carriers may choose to exit the market in California instead of trying to achieve 80% MLR on individual & family health coverage.
I will be curious to see who is left standing between now and 2014.


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