Why is 85/15 M.L.R. OK, but 80/20 Isn't?

[AllenChicago]

There is something I don't understand about Health Insurance Companies reaction to Medical Loss Ratio rules.

As discussed in other forum threads, several companies are asking for waivers, or pulling out of specific states citing their inability to comply with the Individual Health market 80/20 MLR regulations.

QUESTION: Why is the 80/20 such a pain in the butt, but the 85/15 for group policies is not a problem for them? Don't groups have higher administrative expenses than individual policies, because members tend to use these low-deductible/copay-rich plans more?

My family is on a large BCBS group plan. We receive a lot of paperwork from Blue Cross administration, billing, etc.. every month. There's no way we'd have this much paperwork coming in if we had a typical Individual policy. Yet insurance companies seem to be OK with the 15% limit for Non-medical expenditures on the group side. I don't get it.
-AC

 

[leevena]

Actually it is the opposite, group can be less costly from an adminstrative perspective.

As for your comment "the 85/15 for group policies is not a problem for them?" is not entirely true either. There have been many group carriers who have, and will soon, exit the market because they cannot meet this target.

 

[somarco]

Carriers asking for waivers don't really plan on being in the game come 2014. They are just looking for another 2 yrs to add to their block so they can (hopefully) sell it in 2013.

 

[bill3173]

Why exactly is 85/15 a problem for large group? It may be challenging for some inefficient carriers, but keeping the administrative costs at 15 shouldn't be a long term problem.

An unusual spike in claims would not translate into corresponding rise in cost per employee as a percent of revenue. There may be an incidental increase in administrative cost, but it would not be a linear ratio.

Actually, the larger and more flexible carriers should do well as the smaller, less flexible carriers exit the market.

What am I missing?

 

[leevena]

Why exactly is 85/15 a problem for large group? It may be challenging for some inefficient carriers, but keeping the administrative costs at 15 shouldn't be a long term problem.

An unusual spike in claims would not translate into corresponding rise in cost per employee as a percent of revenue. There may be an incidental increase in administrative cost, but it would not be a linear ratio.

Actually, the larger and more flexible carriers should do well as the smaller, less flexible carriers exit the market.

What am I missing?

The key to the ratio is having enough premium to allocate over the expense, so you are correct in that the larger plans will have it much easier. A smaller plan, efficient or not, will find it much more difficult.

This is the reason why the large carriers got behind this requirement last year, it will force the medium/small carriers out of the market. In the not so distant future you will have a much smaller carrier market; Humana, Blues, United, Aetna and CIGNA. Maybe another carrier here and there, but it will be very limited.

Administrative costs do spike, but if you look over the past 30 (since I have been in the business) admin costs have continued to rise dramatically. Administration use to mean; paying claims, billing, issuing cards, issuing booklets, company overhead, etc. Now it means UM, network access, case managment, and a host of other things. Let me give you an example. In the early 80's I was a carrier rep and had to try and defend my 7% ASO cost (single rate of about $100) versus 5% elsewhere.

 

[VolAgent]

Aren't most large groups self-insured anyway? How many of them are going to be subject to MLR?

 

[leevena]

Aren't most large groups self-insured anyway? How many of them are going to be subject to MLR?

Yes, but I don't get the point/question.

This actually makes it worst for the carrier. Self-funded groups tend to have better ratio's. By taking them out of the insured pool actually hurts the carrier's 85/15 efforts.

 

[VolAgent]

Yes, but I don't get the point/question.

This actually makes it worst for the carrier. Self-funded groups tend to have better ratio's. By taking them out of the insured pool actually hurts the carrier's 85/15 efforts.

The question is, how many large groups are there that are fully insured and would be subject to the 85/15 MLR? For most carriers, isn't the 80/20 for individual and small group a bigger concern, assuming they wish to play in that market going forward.

 

[leevena]

The question is, how many large groups are there that are fully insured and would be subject to the 85/15 MLR? For most carriers, isn't the 80/20 for individual and small group a bigger concern, assuming they wish to play in that market going forward.

Ahhh, I finally got it. The ratio is not on the group level, it's on the carriers book of business level, by pool. So, let's assume that the carrier has 1,000 large groups in the "large group pool" of business. The 85/15 is applied to the aggregated pool (or block) of business.

Does this make sense?

 

[VolAgent]

Ahhh, I finally got it. The ratio is not on the group level, it's on the carriers book of business level, by pool. So, let's assume that the carrier has 1,000 large groups in the "large group pool" of business. The 85/15 is applied to the aggregated pool (or block) of business.

Does this make sense?

Yes, I understand it is pooled. What I saying is, if Carrier X has 1,000 large group, and 950 of them are self-insured, then it only has to get a pool of 50 groups into line. I guess you might see self-funded groups subsidizing insured groups on administrative costs for the carrier.