Medical Loss Ratio or MLR is the minimum percentage of premium dollars insurance companies are allowed to spend on administrative costs such as salaries, marketing and bills. For instance if an insurer uses 70 cents out of each premium dollar to pay their customers’ medical claims to improve their quality of life, the company is said to have a medical loss ratio of 70%. The remaining 30% will then be used to pay for the costs of operation, marketing, profits, administrative bills, as well as reimbursement of commissions.
The health care law was sanctioned primarily to keep the premium costs of users as minimal as possible while still affording them a good quality of life. At the time of this article’s writing, insurance companies are generally required to spend a minimum of 80% of the money from premiums.
The minimum is increased to 85% if the groups involved are small and medium sized enterprises (SMEs) who have 50 or more employees. If the insurance company fails to meet these minimum requirements, they are required by law to rebate their customers on part of the premium they received.
The current status quo however is scheduled to be upended
Recent efforts by Senators Johnny Isakson and Chris Coons to introduce a bipartisan bill are touted as the latest wave of relief for agent and broker compensation. The bipartisan bill will make significant changes in the Affordable Care Act’s prescribed medical loss ratio requirements. This move has been appreciated tremendously because the bill makes exclusions to agent and broker compensations previously enacted in the ACA.
This will prove to be specifically beneficial to agents, brokers and the consumers in general who rely on their advice. “The act now states that agent compensations are not an administrative expense for insurance companies,” says National Association of Health Underwriters (NAHU)’s Janet Trautwein, who has lauded this senator’s bill.
The previous MLR rules were a source of much grief to agents and brokers because it deprived them of a financial motive to help consumers who relied on them for appropriate advice. It proved to be increasingly difficult to operate because their compensations did not justify the efforts they generally put out. As a result, brokers and agents began to evacuate the marketplace, leaving a gaping hole in the local insurance market.
It’s not always a good idea to get more than you bargained for
The price for getting more than your money’s worth took a general toll in the market, effectively mulling proper individual insurance coverage because of the mass exodus of brokers. Insurers who operated primarily in small business markets were unable to meet these requirements,which affected the number of consumers from getting access to proper health care coverage.
It is hoped that competition between insurers would increase and result in representation of more individuals than ever before because of the new bill.
This positive change is needed now more than ever to help consumers properly understand all the complex changes being currently made to the Affordable Care Act.
