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Increasing the Value of your Health Insurance

By Dr. Nilesh Kalyanaraman

Most of us who get health insurance through our workplace got a chance last month to choose which health insurance plan to sign up for. Wading through the choices is daunting as you try to figure out which plans meet yDoctor Apple Moneyour needs while making sure you get the most value for your money. At the very least you want a plan that spends its premiums on health care for you and your family, not on profits and denying care.

The good news is that the Affordable Care Act (ACA) makes sure that more of your money gets spent on delivering care to you. The ACA does this by setting a minimum level of spending on health care and related activities such as billing, credentialing of providers and disease management. These activities are collectively known as the medical loss ratio (MLR) – an Orwellian term that counts as a loss the essential function of the industry. Marketing, sales commission and recissions are not considered losses since they exist mainly to maximize profit, which is the main element not included in the MLR. An MLR of 85 would mean that greater than 85% of premiums would be spent on health care and related activities. (For more info see my previous post on the MLR.)

As of January 1, health plans have to make sure that their medical loss ratio is greater than 80 for small group and individual plans and greater than 85 for a large group plans. The average MLR for small group plans is in the 70’s which means that the ACA will significantly improve the value of these plans. For large group plans the MLR is around 90 so the impact of the ACA is less, but it does force the poorly performing plans to improve their value.

A Congressional report on Medicare Advantage Plans showed that they have an average MLR of 85. That sounds good but it means that around half the plans provided less value than that and the worst plan had an MLR of less than 60. In fact, five of the ten largest Medicare Advantage plans had an MLR less than 85.

Medical Loss Ratio Medicare Advantage GraphThe Congressional report estimates that if just the Medicare Advantage plans were forced to have an MLR of at least 85, over $3 billion more would have been spent on health care instead of on profits and marketing.

The new Republican majority in the House has stated that they will schedule a vote to repeal the ACA on January 12. As a matter of political theater, this effort is silly since the president who fought for and signed the law is not going to sign its repeal.  On the issue of substance it’s irresponsible that something as important as the MLR rule is considered expendable. The MLR rule is one of the many elements of the ACA that seek to deliver greater health care value to our patients while controlling the rapid rise in health care costs. Beneath the technical points and jargon, the bottom line is that this is progress that we will all benefit from.

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