Private Health Insurance: Early Experiences Implementing New Medical Loss Ratio Requirements
Published: 2011-07-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To help ensure that Americans receive value for their premium dollars, the Patient Protection and Affordable Care Act (PPACA) established minimum "medical loss ratio" (MLR) standards for health insurers. The MLR is a basic financial indicator, traditionally referring to the percentage of premiums spent on medical claims. The PPACA MLR is defined differently from the traditional MLR. Beginning in 2011, insurers must meet minimum MLR requirements or pay rebates to enrollees. While insurers' first set of data subject to the MLR requirements will be for 2011, and is not due until June 2012, insurers prepared preliminary PPACA MLR data for 2010. GAO examined: (1) what can be learned from the traditional MLR data reported by health insurers prior to PPACA; (2) what factors might affect the MLRs that insurers will report under PPACA; and (3) what changes in business practices, if any, have insurers made or planned to make in response to the PPACA MLR requirements. GAO analyzed premiums, claims, and traditional MLR data for nearly all insurers for 2006- 2009 and interviewed a judgmental sample of seven insurers--selected to provide a range based on their size, profit status, and the number of states in which they operated--about their experiences using the PPACA MLR definition.
section_title: What GAO Found
paragraphs: From 2006 through 2009, traditional MLRs on average generally exceeded PPACA MLR standards. This is even without the additional components in the new PPACA MLR that will generally increase MLRs. However, traditional MLRs also varied among insurers. Traditional MLRs within the individual market varied more than those within the small and large group markets, and a larger proportion of individual market insurers generally had lower MLRs. Additionally, traditional MLRs varied more among smaller insurers than among larger insurers in all three markets. Some components of the PPACA MLR requirements may mitigate the implications of some of these variations. The insurers GAO interviewed said their PPACA MLRs will be affected by changes in the MLR formula and their ability to provide more precise data in 2011 and beyond. Most of these insurers reported that the deduction of taxes and fees in the PPACA MLR formula would contribute to the largest change in their 2010 MLRs. Including expenses for activities to improve health care quality was also cited as a factor affecting insurers' MLRs but to a lesser extent. In addition, because insurers had limited time to respond to HHS's interim final rule on PPACA MLRs, which was published in late 2010, they said that their 2010 MLRs were based in part on best estimates. Insurers said they expect their ability to provide more precise PPACA MLR data will improve in 2011 and beyond. Most of the insurers GAO interviewed were reducing brokers' commissions and making adjustments to premiums, as well as making changes to other business practices, in response to the PPACA MLR requirements. Almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs. Insurers varied on how the PPACA MLR requirements might affect their decisions to implement activities to improve health care quality. While one insurer said that their decision to implement new activities would be affected by whether or not an activity could be included as a quality improvement activity in the PPACA MLR formula, other insurers said that the PPACA MLR requirements are not a factor in such decisions. Insurers also differed on how the PPACA MLR requirement may affect where they do business. One insurer said that they have considered exiting the individual market in some states in which they did not expect to meet the PPACA MLR requirements, while several other insurers said that the PPACA MLR requirements will not affect where they do business. In commenting on a draft of this report, the Department of Health and Human Services (HHS) said that the MLR provision will increase transparency in the insurance market and value for consumers' premiums.

section_title: Letter
paragraphs: To help ensure that millions of Americans who rely on private insurance  for health care coverage receive value for their premium dollars, the  Patient Protection and Affordable Care Act (PPACA) established  minimum “medical loss ratio” (MLR) standards for insurers. The MLR is a  basic financial indicator, traditionally referring to the percentage of  insurance premium revenues health insurers spent on their enrollees’  medical claims. The MLR definition specified in the PPACA provision— referred to as the PPACA MLR in this report—differs from the traditional  MLR definition. Key differences are that it allows insurers to include in  their expenses spending on activities to improve health care quality and  to deduct from their revenues certain tax payments and fees. PPACA  requires insurers offering coverage in the large group market to meet  minimum PPACA MLRs of 85 percent, and in the small group and  individual markets to meet minimum PPACA MLRs of 80 percent, or pay  rebates to their enrollees. The Department of Health and Human  Services (HHS) estimated that in 2011, the PPACA MLR requirements  will apply to health insurance plans covering about 75 million insured  Americans.
HHS is responsible for implementing the PPACA MLR provision, including  certifying the definitions and methodologies used for calculating MLRs  developed by the National Association of Insurance Commissioners  (NAIC). The first set of data subject to the requirements will be for  insurers’ expenditures for calendar year 2011, which are to be submitted  to HHS in June 2012. In the interim, in April 2011, insurers submitted  preliminary MLR data to NAIC based on their 2010 expenditures using  the PPACA MLR definition.
There has been much debate among Congress and other stakeholders  on the potential impact of the PPACA MLR requirements. For example,  consumer advocates have asserted that the requirements will help ensure  that consumers receive value for their premium dollars, and have cited  what they believe are excessive industry profits as evidence that  minimum MLR requirements are needed. Insurance industry  representatives have expressed concern about the potential for the  requirements to affect the stability of certain insurance markets, and  ultimately consumer choice in those markets.
You asked us to examine issues related to the MLR requirements in  PPACA. This report addresses: (1) what can be learned from traditional  MLR data reported by health insurers prior to the PPACA MLR  requirements; (2) what factors might affect the MLRs that insurers will  report under the PPACA MLR requirements; and (3) what changes in  business practices, if any, insurers have made or plan to make in  response to the PPACA MLR requirements.
To determine what can be learned from traditional MLR data reported  prior to PPACA, we analyzed premiums, claims, and MLR data insurers  reported to NAIC on their annual statements for 2006 through 2009. We  used these data to analyze the averages and ranges of traditional MLRs  by year, and by insurance market and insurer size. To assess the  reliability of these data, we reviewed relevant documentation, conducted  interviews with NAIC officials knowledgeable about the data, and  conducted electronic testing of the data to identify obvious errors or  outliers. We determined that the data were sufficiently reliable for the  purposes of this report. To determine what factors might affect the MLRs  that insurers will report under the PPACA MLR requirements, and what  changes in business practices, if any, insurers have made or plan to  make in response to the PPACA MLR requirements, we interviewed a  judgmental sample of seven insurers to learn about their experiences  reporting 2010 MLRs using the PPACA MLR definition, as well as their  expectations related to future reporting of data that will be subject to the  PPACA MLR requirements. We selected our sample to reflect a variety  of insurers based on certain characteristics, including insurer size as  determined by the number of enrollees; the number of insurance  companies within the insurance groups; profit status; whether the insurer  was publicly traded or privately held; and the number of states in which  the insurer operated. We also interviewed a group of officials from seven  state insurance commissioners’ offices and NAIC officials, which was  convened by NAIC at our request, to obtain their perspectives on issues  related to the transition of the new PPACA MLR requirements for 2011  and beyond.
We conducted this performance audit from December 2010 through July  2011 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: PPACA established minimum MLR standards for insurers offering group  or individual health insurance coverage using a new MLR formula that  differs from the way MLRs have traditionally been calculated. To  implement the PPACA MLR provisions, HHS issued an interim final rule  that provided specific definitions and methodologies to be used in  calculating the new MLRs, and that addressed other areas, including  adjustments to the MLRs to address the circumstances of certain types of  plans, and oversight and enforcement. Insurers will begin reporting  PPACA MLRs to HHS in June 2012.
subsections: section_title: Traditional and PPACA MLR Formulas
paragraphs: In the private health insurance industry, the MLR is a commonly used  indicator, measuring the proportion of premium dollars an insurer used for  medical claims, as opposed to other functions, such as marketing,  actuarial activities, or profit. While many states have minimum MLR  standards or MLR reporting requirements, PPACA established federally  required minimum MLRs for insurers operating in the individual and group  insurance markets.
The MLR formula specified in PPACA differs from the way MLRs have  traditionally been defined. The traditional MLR is generally calculated by  dividing an insurer’s medical care claims by premiums. In the PPACA  MLR formula, the numerator includes insurers’ expenses for activities that  improve health care quality—such as patient-centered education and  counseling, care coordination, and wellness assessments—in addition to  claims. Further, the denominator of the PPACA MLR subtracts from  insurers’ premiums all federal taxes and state taxes and licensing or  regulatory fees (see fig. 1).
In addition to establishing the new MLR formula, PPACA directed NAIC to  establish recommended definitions and methodologies for calculating  MLRs, subject to certification by the Secretary of HHS. NAIC submitted  its recommendations to HHS on October 27, 2010, and HHS issued its  interim final rule implementing the PPACA MLR requirements in PPACA  on December 1, 2010, with an effective date of January 1, 2011.  According to HHS, the interim final rule adopted NAIC’s  recommendations in full, and included the following key areas.    Activities that improve health care quality. These include activities  designed to increase the likelihood of desired health outcomes in  ways that can be objectively measured. The activities must be  primarily designed to: (1) improve health outcomes; (2) prevent  hospital readmissions; (3) improve patient safety; (4) implement,  promote, and increase wellness and health activities; and (5) enhance  the use of health care data to improve quality, transparency, and  outcomes. Insurers are also allowed to include health information  technology (IT) expenses needed to accomplish activities that  improve health care quality. Also specified were certain activities that  do not qualify as those that improve health care quality, such as  provider credentialing.    Federal and state taxes and licensing or regulatory fees. These  include all federal taxes and assessments, excluding taxes on  investment income and capital gains.    Levels of aggregation for MLR reporting. Insurance companies are  required to report MLRs separately for their individual, small group,  and large group markets for each state in which they are licensed to  operate.    Credibility adjustments. All insurers experience some random  variability in their claims, where actual claims experience varies from  expected experience. The impact of these deviations is less for health  plans with a larger customer base. To help address the  disproportionate impact of claims variability on small health plans,  adjustments to MLRs are permitted for these plans. Specifically,  MLRs for plans with  less than 1,000 life years will be considered “noncredible” and will  be presumed to meet the MLR requirements;    1,000 to less than 75,000 life years will be considered “partially  credible” and may receive an upward adjustment ranging from   1.2 to 8.3 percentage points, depending on size, and a further  adjustment if they have high deductibles; and    75,000 life years or more will be considered “fully credible” and will  not receive an adjustment.
HHS estimates show that for 2011 a small fraction of insurers that offer  plans in the individual, small group, or large group markets would be  considered fully credible, but these insurers account for the majority of the  total life years covered by these types of plans. About half of insurers  that offer plans in the small and large group markets and a little less than  a third of insurers that offer plans in the individual market would be  partially credible and could apply a credibility adjustment.    Years of data to include in calculating the MLR. Beginning in 2013,  insurers’ MLRs will be calculated based on a 3-year period of the  accumulated experience for the current reporting year and the   2 preceding years. Because insurers will not have 3 years of MLR  data for 2011 and 2012, MLRs for these years will be calculated as  follows: (1) MLRs for 2011 will be calculated on their experience for  2011, (2) MLRs for plans that are fully credible in 2012 will be  calculated based on their experience for 2012, and (3) MLRs for plans  that are partially or noncredible in 2012 will be calculated based on  accumulated experience from 2011 and 2012.
HHS’s interim final rule also addressed areas that NAIC did not  specifically include in its recommendations, which focused primarily on  the definitions and methodologies used for calculating the MLR. Some  key areas are summarized below.    Treatment of agents’ and brokers’ commissions and fees. HHS  explicitly listed agents’ and brokers’ commissions and fees as  nonclaims expenses. NAIC did not include any special treatment of  these expenses in its recommendation to HHS, but raised concerns  about the potential impact of the MLR requirements on the ability of  these professionals to continue assisting consumers. HHS officials  have continued to discuss this issue with NAIC. Legislation has also  since been introduced to deduct agents’ and brokers’ fees from  premiums in the MLR calculation.    Adjustment to the standard for a state’s individual market. In addition  to providing for credibility adjustments, PPACA provided HHS with the  authority to adjust the MLR standard for the individual market in a  state if it determines that the application of the standard may  destabilize the individual market in that state. Although NAIC’s  recommendations to HHS did not specifically address adjustments to  the MLR standard for the individual market, NAIC did raise concerns  about the ability of many insurers to readily achieve an MLR of   80 percent. In the interim final rule, HHS established a process for  states to apply for an adjustment to the MLR standard for the  individual market in that state that included the information states  must provide in their applications and the criteria HHS would use to  assess the applications. As of July 25, 2011, 12 states and   1 territory had applied to HHS for an adjustment; HHS had granted an  adjustment of the MLR in 5 states, did not grant an adjustment in   1 state, and was in the process of reviewing the remaining  applications.    Oversight. HHS is responsible for direct enforcement of the reporting  and rebate provisions of the MLR requirements, including that the  reports are submitted timely, that the data comply with the definitions  in the regulations, and that rebates are paid timely and accurately.  The interim final rule provides a framework through which HHS may  conduct audits to determine insurers’ compliance with the provisions  and provides that HHS may, in its discretion, accept the findings of  audits that state regulators may conduct of an insurer’s MLR reporting  and rebate obligations, as long as specified conditions are met. The  interim final rule also provides for the imposition of civil monetary  penalties if insurers fail to comply with the requirements.
HHS received public comments on the interim final rule from  representatives of the insurance industry, consumers, state regulators,  and others, covering a wide range of topics, such as the treatment of  agents’ and brokers’ fees, the methodology for determining credibility  adjustments, and the treatment of taxes. According to HHS officials, HHS  has not determined when it will issue a final rule.
section_title: MLR Reporting
paragraphs: PPACA MLRs will be reported to HHS every June and will reflect insurers’  experiences from the previous calendar year. The first set of these data  will be submitted to HHS in June 2012, reflecting insurers’ experiences  from 2011. In April 2011, insurers reported MLRs to NAIC using the  PPACA MLR definition based on their 2010 experience. These data are  not subject to the PPACA MLR provisions and will not be adjusted to  account for credibility or other issues addressed in the provisions.
section_title: Traditional MLRs on Average Generally Exceeded PPACA MLR Standards, but Varied, Particularly among Individual Market and Smaller Insurers
paragraphs: Traditional MLR averages generally exceeded the PPACA MLR  standards in each market, even without the changes in the new PPACA  MLR formula that will generally further increase MLRs. However,  traditional MLRs also varied among insurers, particularly among those in  the individual market and smaller insurers. Since traditional MLRs were  calculated differently than they will be under the PPACA requirements, it  is difficult to predict, based on these data, what insurers’ MLRs would  have been using the PPACA formula, or to predict the MLRs that insurers’  will report in the future.
subsections: section_title: Traditional MLR Averages
paragraphs: From 2006 through 2009, insurers’ traditional MLR averages generally  exceeded the PPACA MLR standards—80 percent for the individual and  small group markets and 85 percent for the large group market. This is  even without the new PPACA MLR formula definitions or credibility  adjustments that will generally further increase MLRs reported under the  PPACA requirements. The average traditional MLRs reported for 2006  through 2009 were also relatively stable for all markets (see table 1).  Since traditional MLRs were calculated differently than they will be under  the PPACA requirements, it is difficult to predict, based on these data,  what insurers’ MLRs would have been using the PPACA formula, or to  predict the MLRs that insurers’ will report in the future.
While traditional MLRs on average generally exceeded the PPACA MLR  standards from 2006 through 2009, they varied, particularly in the  individual market. For example, figure 2 shows that in 2009 traditional  MLRs in the individual market were more widely distributed than those in  the small and large group markets. Within this variation in the individual  market, a larger proportion of insurers generally had lower MLRs; that is,  they spent a lower percentage of their premiums on medical claims, as  compared to insurers in the small and large group markets. Under  PPACA, states may request adjustments to the MLR standard for the  individual market if application of the standard may destabilize that  market, for example, by causing insurers to exit the market, such that  insurance options are limited in the state.
Annual fluctuations in insurers’ traditional MLRs were also greater for  insurers in the individual market. For example, 70 percent of insurers in  the individual market experienced an average annual change in their  traditional MLRs of more than 5 percentage points from 2006 through  2009, compared to 46 percent in the small group market and 39 percent  in the large group market. Almost 12 percent of insurers in the individual  market averaged annual changes greater than 20 percentage points,  compared with about 4 percent of insurers in both the small group and  large group markets. Beginning in 2013, insurers will calculate their  PPACA MLRs based on 3 years of data, which could partially mitigate the  impact of variations often experienced by insurers from year to year.
Traditional MLRs were also more varied for smaller insurers in all three  markets from 2006 through 2009. For example, figure 3 shows that in  2009 traditional MLRs for smaller insurers were more widely distributed  than those for larger insurers, with a higher percentage of smaller  insurers generally reporting lower MLRs. The credibility adjustments in  PPACA allow smaller insurers to upwardly adjust their MLRs. Data for  figure 3 are aggregated across all states that an insurer operates in.  However, since insurers are required to report their PPACA MLRs at the  state level, it is likely that in 2011 and beyond, more insurers will have  less than 75,000 life years in a market at the state level and will be  eligible for a credibility adjustment.
section_title: PPACA MLRs Will Be Affected by Changes in the MLR Calculation and Insurers’ Ability to Provide More Precise Data in 2011 and Beyond
paragraphs: The insurers we interviewed said their PPACA MLRs will be affected by  changes in the MLR formula, primarily due to the deduction of taxes and  fees in the denominator, and to a lesser extent, the addition of expenses  for activities to improve health care quality in the numerator. Insurers also  said that the PPACA MLR requirement to report MLRs by state will affect  their PPACA MLRs. Insurers said they expect the precision of their  PPACA MLR data to improve in 2011 and beyond, in part because their  2010 MLRs were based on best estimates.
subsections: section_title: Insurers Reported That Changes in the Way MLRs Are Calculated Will Affect Their PPACA MLRs
paragraphs: Most of the insurers we interviewed reported that the deduction of taxes  and fees in the denominator of the PPACA MLR formula would contribute  to the largest change in 2010 MLRs compared to the traditional MLR  formula, but some insurers said the effect of the deductions vary by state  and may vary in 2011 and beyond. One insurer told us that the effect of  deducting taxes and fees for their 2010 MLRs was more than double the  effect of including their expenses for activities to improve health care  quality in the numerator. Another insurer told us that the effect of taxes  and fees would vary by state because state taxes, such as premium taxes  and other state assessments, can vary. Further, one insurer said that  while the deduction of taxes and fees was the largest component that  affected their 2010 MLRs, and resulted in increased MLRs, if the insurer  were to experience a loss in profits in a future year, and therefore a  reduction in its income taxes, the effect of this deduction could result in a  decrease in MLRs. Regulators from several state insurance  commissioners’ offices also told us that they believed the deduction of  taxes and fees in the PPACA MLR formula would likely have the largest  impact on MLRs reported by insurers in 2010.
Most of the insurers we interviewed also said including expenses in the  numerator of the PPACA formula for activities to improve health care  quality contributed to changes in the 2010 MLRs compared to what they  would have been under the traditional formula. However, including these  expenses had less of an effect on their MLRs than the deduction of taxes  and fees. One insurer estimated that the inclusion of these expenses in  the PPACA MLR formula would increase their MLRs by 0.5 percentage  points, but this was a fraction of the total estimated 2.0–2.5 percentage  point increase in their MLR overall, which the insurer said was primarily  due to the deduction of taxes and fees. Another insurer estimated that the  impact of including their expenses for quality improvement activities  would be less than 2 percentage points, but the deduction of taxes  represented the largest component driving the increase in their 2010  MLRs. In addition, two insurers said that including quality improvement  expenses would have very little impact on their PPACA MLRs. Examples  of activities that improve health care quality that insurers included in their  PPACA MLR were disease management programs, wellness activities,  24-hour nurse phone lines, and care coordination.
Insurers that issue insurance plans in more than one state said that  disaggregating MLRs by state will likely result in some variation in their  MLRs across states. For example, one insurer said that a higher  proportion of their premium dollars are spent on administrative expenses  in one of their states because they tend to sell lower benefit plans, which  they said have high administrative costs relative to premiums, in this  state. While this insurer historically reported a single MLR combining data  across two states, they said the disaggregation by state required for the  PPACA MLR resulted in lower MLRs in the state with lower benefit plans  compared to the other state. For example, MLRs in this state were   1.5 percentage points lower in the individual market and 4.5 percentage  points lower in the small group market than the MLRs in the other state.  Another insurer said that prior to the PPACA MLR requirements they  priced insurance plans for the small group market to employers located in  two states as a single market. When they calculated the PPACA MLRs  separately for each state they noted variations between the two MLRs  because medical costs were different in each state.
section_title: Insurers’ Ability to Provide More Precise Data Will Affect PPACA MLRs Reported in 2011 and Beyond
paragraphs: All of the insurers we spoke with said that their PPACA MLRs for 2011  and beyond will be more precise than the 2010 MLRs reported to NAIC  for several reasons. Because HHS’s interim final rule on PPACA MLRs  was published in late 2010, insurers told us that they used their best  estimates to apply the PPACA definition to experiences incurred earlier in  the year. They said their PPACA MLRs for 2011 and beyond will be more  precise because they will not be based on estimates and they will have a  full year of data that they collected according to the new PPACA MLR  categories. A regulator from one state insurance commissioner’s office  described 2010 as a “test” year and said it will help insurers better  prepare to report their 2011 MLRs. The regulators also agreed that the  2010 MLR data would not be a clear indicator of insurers’ expenses for  quality improvement activities because insurers’ may vary in how  precisely they report these expenses. In addition, some insurers told us  they had never reported MLRs both by state and by insurance market  prior to the PPACA MLR requirements, and were having challenges  developing reasonable bases for allocating expenses across states and  insurance markets for their 2010 reporting. However, they expected these  issues to be resolved for 2011. For example, one insurer told us that their  medical quality activities are centralized and apply to all markets, but they  must now apportion their expenses for these activities by market, then to  each of their insurance companies, and then by state. This insurer said  that they implemented a new timekeeping system late in 2010 to better  account for the time that their staff spend on these activities to address  these allocation issues and expect to produce more precise data for their  2011 MLRs and beyond.
Most of the insurers we interviewed also told us that their 2010 MLR data  may be less precise than data reported in future years because of  challenges they had in identifying and allocating health IT expenses. For  example, one insurer told us that their health IT is a centralized function  that is also used for other lines of insurance business, such as Medicare  and Medicaid, which they said are not subject to PPACA MLR  requirements. Another insurer said that determining their health IT  expenses was less clear relative to the other subcategories of activities to  improve health care quality in that it was hard to identify how much of  their internal IT system infrastructure uniquely supported the other eligible  quality activities. In addition, one insurer that only operates in a single  state said that identifying expenses for health IT was challenging when  factors such as facilities and employees’ salaries had to be considered.  However, all of these insurers anticipated that these issues would be  largely resolved when they report their 2011 PPACA MLRs.
section_title: Insurers Reported That They Are Making or Considering Changes to Brokers’ Commissions and Premiums, and to Other Business Practices
paragraphs: Almost all of the insurers we interviewed were reducing brokers’  commissions and making adjustments to premiums in response to the  PPACA MLR requirements. These insurers said that they have decreased  or plan to decrease commissions to brokers in an effort to increase their  MLRs. One insurer said they started making reductions to their brokers’  commissions in the fourth quarter of 2010 for their individual and small  group plans to increase their 2011 PPACA MLRs in these markets and,  as a result, premiums were not as high as they otherwise would have  been. This insurer said these reductions will take effect gradually because  they are only being applied to new sales or when groups renew annually.  Another insurer lowered commissions to their brokers in the individual  market in the first quarter of 2011, such that premiums were increased  less than they otherwise would have been, which they expect to result in  an increase in their PPACA MLRs for 2011. In addition, one insurer said  they are considering reducing premiums in 2012 partly in response to the  PPACA MLR requirements and also in conjunction with a reduction in the  number of in-network physicians—the combined strategy would help to  lower enrollee premiums and increase their MLRs. A regulator from one  state insurance commissioner’s office said that some insurers in that state  have not applied for premium increases and are making adjustments to  lower premiums as a strategy to increase their MLRs, and commented  that reducing premiums is the best strategy for insurers to improve value  for consumers.
Insurers we interviewed varied on how the PPACA MLR requirements  might affect their decisions on activities to improve health care quality.  One insurer said that they may reduce their expenses on activities that  HHS does not consider quality improvement activities in the PPACA MLR  formula, such as retrospective utilization review (a review of a patient’s  records after the medical treatment has occurred) and increase expenses  for activities that qualify, such as prospective utilization review. Another  insurer said that they are no longer focusing as much on preauthorization  for inpatient admissions because this is not an eligible quality  improvement activity in the PPACA MLR formula. This insurer also said  the PPACA MLR requirements provide an incentive to spend more money  on quality improvement activities, which will affect their decisions on  implementing new activities in the future. Conversely, five other insurers  told us that the PPACA MLR requirements are not a factor in decisions  about their activities to improve health care quality.
Insurers we interviewed also varied on how the PPACA MLR  requirements may affect where they do business. For example, one large  insurer that operates in multiple states said that they have exited the  individual market in one state where they did not have a large market  share, in part, because of the MLR requirements, and they are evaluating  whether to exit this market in other states where it might be difficult to  meet the PPACA MLR requirements. One for-profit insurer told us that  they plan to exit or stop issuing new business in the individual market in  multiple states as well as consolidating some of their insurance  companies in some states in which they did not think they would meet  PPACA MLR requirements. Several other insurers said that the PPACA  MLR requirements will not affect decisions on where they do business.  For example, one not-for-profit insurer said that serving the communities  where they operate is part of their mission and, therefore, they will not be  exiting any markets in the states they serve. Another insurer is  considering eliminating some of their high and mid-level deductible plans,  but not exiting any markets.
section_title: Agency and Third- Party Comments
paragraphs: We obtained written comments from HHS which are reprinted in   appendix I. HHS commented that the PPACA MLR provision will increase  transparency in the health insurance marketplace and the value  consumers receive for their premium dollar. HHS also provided technical  comments, which we incorporated as appropriate.
Additionally, we provided a draft of this report to NAIC for comment. NAIC  responded that the report was fair, factual, and helpful and provided  technical comments, which we incorporated as appropriate.
As arranged with your offices, unless you publicly announce the contents  of this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of Health  and Human Services, the Administrator of the Centers for Medicare &  Medicaid Services, and appropriate congressional committees. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or at dickenj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Health and Human Services
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Gerardine Brennan, Assistant  Director; George Bogart; Julianne Flowers; Drew Long; Lisa A. Lusk;  Linda McIver; Jessica C. Smith; and Janet L. Sparks made key  contributions to this report.