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

[leevena]

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.

Self funded do not count towards the 85/15. So in this example the carrier is doing the ratio on 50 groups. Bet a large pepperoni pizza that this carrier will fail.

 

[AllenChicago]

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.

Why are groups LESS costly from an administrative stand-point? As I said in the original post, my family gets a lot of notices from Blue Cross..everything from Privacy Notices, to multiple EOB's, to Group Notifications stating rights for open enrollment, conversions, etc... I think the federal and state government requires much more from group plans in the area of reporting, disclosures and employee rights.

On the other hand, Individual policy owners typically have less-rich, higher deductible plans. They use them less, which means less Administrative Overhead.

The 85/15 should cause as many companies to cry "foul!" as the 80/20. Aetna cited the 80/20 as why they have stopped writing individual business in Indiana. They're not complaining about the more restrictive 85/15 MLR for their group business.

I just don't understand how low-deductible/high-use groups can be less administrative intensive than their (relatively) high-deductible/low-use individual plan counterparts. Perhaps there is a major flaw in my logic on this subject. sigh...
-AC

 

[somarco]

At least three reasons why groups are less expensive to administer.

Larger groups have HR to handle most of the questions that are addressed by carriers on small group and individual. Individual and small group require more HO resources, driving up the cost.

Higher commission as a percent of premium on individual and small group definitely come in to play.

More underwriting and claim adjudication costs with individual. Very little post-issue claim review (checking pre-ex) with group vs. quite a bit with individual.

Lee can probably add a few others.

 

[Guest]

At least three reasons why groups are less expensive to administer.

Larger groups have HR to handle most of the questions that are addressed by carriers on small group and individual. Individual and small group require more HO resources, driving up the cost.

Higher commission as a percent of premium on individual and small group definitely come in to play.

More underwriting and claim adjudication costs with individual. Very little post-issue claim review (checking pre-ex) with group vs. quite a bit with individual.

Lee can probably add a few others.

Well put and makes sense. I think the policy review on claims in the first year or two add a lot to admin costs. Then add on the cost to rescind a policy. Would be less if people didn't lie on their apps in the first place, oh well.