Medical Loss Ratios: A Necessary Mandate in Health Care Reform

I was heartened to see that the Senate version of the health care reform bill would set the medical loss ratio for health plans at 85% for large group plans and 80% for small group and individual plans, and that the House set everyone's rate at 85%. The original proposal by Senator John D. Rockefeller of West Virginia had the ratio at 90%—a number rejected as unrealistic.

And, the reform bills have a penalty clause built in for insurers failing to hit the prescribed medical loss ratio (MLR)—they have to rebate the difference to their customers. See "To Your Health: How Congress plans to get insurers to spend money on actual health care" by Slate writer Christopher Beam. For major insurance companies, this wouldn't change much. The average MLR of for-profit insurance plans offered to large employers is about 84%. Small employers, or companies with 50 or fewer workers, have an average MLR of 80%. But, in the individual insurance market, the MLR is around 70%.

While this is a great start, I think 80% is too low. And, the devil is in the details, so to speak. The reform bills are still defining what exactly 'health care spending' is—a critical set of definitions. Stay tuned