Medical Loss Ratio: Putting Percentages and Politics Aside

The Medical Loss Ratio (MLR) policy written into the Patient Protection and Affordable Care Act (PPACA) requires health insurance companies to deliver more direct value to consumers by mandating that they spend a higher percentage of premium dollars collected on medical care, as opposed to administrative costs.

The new law requires that at least 85 percent of all premium dollars collected by insurance companies for large employer plans be spent on healthcare services and quality improvement. For plans sold to individuals and small employers, at least 80 percent of the premium must be spent on benefits and quality improvement. If insurance companies do not meet these goals because of administrative costs or high profits, they must provide rebates to consumers starting in 2012.

While much debate exists on if this is requirement is “fair,” those on both side of the argument can agree that any reduction in administrative costs is a step in the right direction, especially if it frees up dollars to be spent in areas that will directly impact members. Moving beyond politics and percentages, payers can save up to 30-50 percent in operating costs when working with a partner to streamline back office processes. Examples include:

  • Claims processing, billing and provider maintenance: By outsourcing standard transactional services, payers can increase data quality and accelerate turnaround time on claims processing and lower costs.
  • Enrollment processing: Payers can turn to partners to handle standard enrollment functions including setting up new member accounts, staffing call centers for member questions and issuing satisfaction surveys.
  • Auditing solutions: Recovering funds from incorrectly paid claims is a service payers can outsource that can recoup funds by having an outsourcing partner track and even litigate wrongful payment claims on an insurance company’s behalf.
  • Customer care: Using a partner to help communicate plan information and answer questions from members allows payers to focus on quality of care and new product introduction, while reducing costs and complying with regulatory demands.

Keeping customers happy will be even more important when customers get to pick and choose health plans in 2014, and member engagement – both in terms of attracting new members and retaining existing – can be a huge part of helping payers reduce overall costs to meet MLR requirements. According to a recent nationwide survey by Xerox Corporation, 55 percent of Americans think their insurance provider should make their benefits information easier to understand with 36 percent wanting communications personalized.

Take for example Regence, a leading health insurer based in Portland, Ore., which turned to Xerox to help redesign its explanation of benefits statement to help improve customer satisfaction among its 2.5 million members. Both Regence’s customer service specialists and members report liking the new format because the statements are easier to understand.

In the end, whether mandated by MLR or not, a reduction in administrative costs by engaging with a qualified partner can help payers free up time to focus on the ultimate objective – premium member service – that will be better position them for long-term success in the ever-evolving healthcare landscape.

Connie Harvey is group president, ACS Healthcare Payer and Insurance.

2 replies »

  1. Dispositive. I can’t really improve on that.

    But I’ll add…

    “Just 98% of dollars for care, and a few percentage points for administration.”

    And not a -7-8 figure E-Suite compensation package to be found.

  2. And so we learn that Connie Harvey isn’t sure what is “fair” but she knows a PR problem when she sees one and looks forward to redesigning benefit statements to solve the PR problem that bringing up the embarrassing MLRs of some companies might create.

    Hey, who can really say if it is better to spend 97% of your premium dollar on care than, say, 80%? It’s all relative right? Does right and wrong REALLY have any meaning?

    Sure something might be bad for patients, bad for the economy, bad for employers, but it might be good for insurance companies and has not the Supreme Court assured us that corporations are persons too? And do they not bleed and suffer too? And do not insurance executives suffer with the vagaries of the insurance underwriting cycle and the awful things that people say about them? Is there to be no compensation for the pain they endure when pointed out as social parasites?

    Or, in other words don’t look at the money we rake off the top that should have gone for medical services – look at these easy to read colorful brochures and benefit statements that help you feel good about whatever amount we’ve decided we need to rake.

    Yep.. But there I’ve gotten all cynical again. It’s just that I can’t help myself. I hear these people talk and my skin crawls.

    I’ll tell you what fair is Ms. Harvey. Fair is an MLR of about 98%, which is what private nonprofit and government systems regularly achieve. See? No scare quotes. Just 98% of dollars for care, and a few percentage points for administration. Now was that so hard?

    Keep your %#$% “redesigned benefit statements” and “premium membership” experiences and give your customers a fair percentage of the money they put in the insurance pool. That’s the service we want. OUR MONEY back (as an insurance pool) when we get sick. And if you can’t do that, well, really, what business does anyone in your industry have operating as a publicly chartered corporation?