Many people have been surprised by the announcement that CVS is interested in purchasing Aetna. Why would a PBM want to own a health plan? There has been speculation that the move by Amazon to get into the pharmacy space may be a reason. But there is another more rationale reason and its based upon a flaw in the Affordable Care Act.
The flaw is known as the Medical Loss Ratio requirement and it reads like this from the CMS website
The Affordable Care Act requires insurance companies to spend at least 80% or 85% of premium dollars on medical care, with the rate review provisions imposing tighter limits on health insurance rate increases. If an issuer fails to meet the applicable MLR standard in any given year, as of 2012, the issuer is required to provide a rebate to its customers.
This requirement was put in place as a way to ensure that health plans did not make money by underutilizing medical care. But it had the unintended consequence of insuring that costs never went down and here’s why.