Many individual market buyers in several states should expect to see surprising checks in the fall of 2019. These will be Medical Loss Ratio (MLR) rebate checks. Insurers are required to spend, on a three year rolling average, 80% of the premium dollars on claims and quality improvement expenses. If they spend more than that, that is fine. If they spend less than 80%, the insurers need to cut checks to their policy holders.
Over the past couple of years, there have not been large checks cut as insurers weren’t making large profits anywhere in the individual market. That is changing. 2017 looks to have been a very profitable year for insurers. 2018 looks to be even more profitable. There is a good chance that the 2016-2017-2018 time period will produce several states with an average MLR well below 80% as the first quarter results plus initial 2019 rate filings strongly suggest that insurers in many states overpriced their premiums for 2018.
The Kaiser Family Foundation has a raw MLR table. Raw MLR is Claims/net premiums. It is not the MLR that CMS uses to calculate rebates. The CMS MLR tends to be a point or two higher in general than a raw MLR.
I think the states that have a 2016-2017 raw MLR average of under 85% where 2016 raw MLR is greater than 2017 raw MLR have a good chance of seeing significant rebate checks in 2019. Three states qualify:
- North Carolina
These three states had low levels of 2018 insurer competition (Alaska 1 insurer for the entire state, Missouri and North Carolina 1 insurer for most of the state).
Another seven states have a raw 2016-2017 average MLR of less than 85%. I think Arizona and Oklahoma are the states that are most likely to see big pay-outs as the no pay-out 2018 MLR target is greater than the 2017 MLR. Again, these states are low competition states. Oklahoma had a single insurer for the entire state and Arizona’s counties were all single insurer.
Eyeballing the data it seems that MLR rebates are likely to occur in low competition states rather than high competition states but I don’t have firm proof on that yet.
I will be curious as to how the politics of significant MLR rebates play out as they pay out. I had a cynical moment last October when I thought about this for the first time in the context of CSR payments:
in the fall of 2019, rebate checks start showing up just as final rates are to be approved. If there is still CSR uncertainty, rate regulators will have strong incentives of getting great press on being tough on the insurance companies by forcing them to hand out very large checks to tens of thousands of residents….
And then in the fall of 2020, ambitious state insurance commissioners will be handing out rebate checks in late September as they are running for Governor or the Senate. Or if they are a bit less ambitious, they are supporting the incumbent party by handing out checks and injecting new federal money into the state and making the fundamental background economic picture a bit better than it otherwise would have been.
I might be getting too cynical today.
Is that how things will play out?