Private Health Insurance: Early Effects of Medical Loss Ratio Requirements and Rebates on Insurers and Enrollees
Published: 2014-07-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Private insurers are required to meet minimum PPACA MLR standards— expressed as the percent of premium dollars spent on patient care and related activities—and beginning in 2011 they must pay rebates back to enrollees and policyholders who paid premiums if they do not meet these standards. GAO was asked to review the effects of the PPACA MLR requirements on insurers and enrollees and how rebates would change if agent and broker payments were excluded from the MLR formula. This report examines (1) the extent to which insurers met the PPACA MLR standards, and how much they spent on the MLR components of claims, quality improvement activities, and non-claims costs; (2) the amount of rebates insurers paid and how this amount would have changed with agents' and brokers' commissions and fees excluded from the MLR; and (3) the perspectives of insurers on the effects of the MLR requirements on their business practices.
To do this work, GAO analyzed the MLR data that insurers reported to CMS for 2011 and 2012 (the most recent data available) at the national level for each insurance market—large group, small group, and individual. GAO also interviewed eight insurers, selected based on variation in their size, concentration of business in the individual market, geography, whether they paid rebates, and profit status. In 2012 the number of enrollees covered by these insurers ranged from about 70,000 to 7 million. GAO's finding on insurers' perspectives is limited to those insurers interviewed and is not representative of the perspectives across all insurers reporting MLR data.
section_title: What GAO Found
paragraphs: The Patient Protection and Affordable Care Act (PPACA) established federal minimum medical loss ratio (MLR) standards for the percentage of premiums private insurers must spend on their enrollees' medical care claims and activities to improve health care quality, as opposed to what they spend on administrative (“non-claims”) costs. Insurers report to the Centers for Medicare & Medicaid Services (CMS) annually on their PPACA MLRs. More than three quarters of insurers met or exceeded the standards in 2011 and in 2012, and the median MLRs among all insurers were 88 percent. Insurers' MLRs and their spending on claims and non-claims costs varied across different insurance markets. Specifically, insurers in the large group market had higher median MLRs and spent a higher share of their premiums on enrollees' claims and less on non-claims costs, compared to insurers in the individual and small group markets.
Insurers that did not meet or exceed the PPACA MLR standards in 2011 and 2012 paid rebates in the amounts of $1.1 billion and $520 million (respectively) back to enrollees and policyholders who paid premiums in those years. These amounts would have decreased by about 75 percent had the commissions and fees insurers paid to agents and brokers been excluded from the MLRs. Agents and brokers sell insurance products and provide various services to consumers and groups related to their insurance needs and the commissions and fees charged for these services are included in the MLRs. Insurers in the large group market paid the highest rebate amount ($405 million) across insurance markets in 2011 and insurers in the small group market paid the highest amount ($207 million) in 2012. Insurers in the individual market were more likely to pay rebates than insurers in the small and large group markets. GAO found that rebates would have fallen from $1.1 billion to $272 million in 2011 if the commissions and fees insurers paid to agents and brokers had been excluded from the MLRs, and rebates would have similarly fallen from $520 million to $135 million in 2012. GAO's calculations assumed that insurers did not make other changes in their business practices in response to a different method for calculating MLRs.
GAO found that most of the eight insurers it interviewed reported that factors other than the PPACA MLR requirements affected their business practices since 2011. All eight insurers reported that they increased their premium rates since 2011 and that they based these decisions on a variety of factors, such as trends in medical care claims, competition with other insurers, and other requirements. Three of the eight insurers stated that the MLR requirements were one among several factors that influenced their decisions about premium rates. Four of the eight insurers stated they had recently made changes to their payments to agents and brokers, and one reported the MLR requirements were a primary driver behind its business decision. All eight insurers GAO interviewed stated that the MLR requirements did not affect their decisions to stop offering health plans in certain markets and have had no effect or a very limited effect on their spending on quality improvement activities.
GAO provided a draft of this product to the Department of Health and Human Services (HHS) for comment. HHS responded that it had no general or technical comments.

section_title: Letter
paragraphs: The Patient Protection and Affordable Care Act (PPACA) established  federal minimum medical loss ratio (MLR) standards for private insurers.  An MLR serves as a basic financial indicator, expressing the percent of  premiums that insurers spend on their enrollees’ medical claims and  quality initiatives, as opposed to administrative expenses or “non-claims”  costs. The greater the share of enrollees’ premiums spent on medical  claims and quality initiatives, the higher the MLR. These minimum MLR  standards are intended to help ensure that individuals covered under  private health insurance plans (enrollees) receive adequate value for their  premiums and to create incentives for insurers to become more efficient  in their operations. If minimum PPACA MLR standards are not met, then  insurers are required to pay rebates back to their enrollees. Insurers were  required to begin paying rebates under PPACA based on their experience  in 2011. In that year, approximately 80 million individuals were enrolled in  plans sold by insurers that were subject to these PPACA MLR provisions,  according to the Centers for Medicare & Medicaid Services (CMS).
PPACA MLR provisions require insurers to calculate separate MLRs for  their expenditure of premiums for each market (large group, small group,  and individual) in each state in which they do business, and require  higher minimum MLR standards for plans sold in the large group market  than for plans sold in the small group and individual markets. CMS  oversees the MLR standards and issues regulations to identify insurers’  expenses that are to be counted as claims and quality improvement  activities, as well as non-claims costs. For example, marketing expenses  and spending on agents’ and brokers’ commissions and fees are counted  as non-claims costs.
There has been debate among health insurance industry stakeholders  about the effects of the PPACA MLR requirements—including the  requirement that insurers count agent and broker compensation as a non- claims cost—on consumers, insurers, and agents and brokers. For  example, while insurance industry representatives have expressed  concern that the requirements could result in insurers leaving certain  markets in some states, causing instability in those markets, consumer  advocates and others have asserted that the requirements have resulted  in greater transparency for enrollees regarding how insurers are using  their premiums. In addition, the agent and broker industry and others  have raised concerns that counting agent and broker compensation as a  non-claims cost in calculating the MLR could cause insurers to decrease  that compensation, which could reduce the availability of agents and  brokers to assist consumers in choosing a health plan to meet their  needs. Some groups advocating for consumers, however, believe that counting agent and broker compensation as a non-claims cost provides  an appropriate incentive for insurers to reduce such costs while not  unduly impacting the ability of agents and brokers to assist consumers.
You asked us to review the effects of the PPACA MLR requirements on  enrollees and insurers as well as how excluding agents’ and brokers’  commissions and fees from the MLR would affect the rebates that  insurers pay. In this report, we (1) examine the extent to which insurers  met the PPACA MLR standards in 2011 and 2012, and how much they  spent on the PPACA MLR components of medical claims, quality  improvement activities, and non-claims costs; (2) examine the amount of  rebates insurers paid in 2011 and 2012 as a result of the PPACA MLR  requirements, and how this amount would have changed with agents’ and  brokers’ commissions and fees excluded from the PPACA MLR and  rebate calculations; and (3) describe the perspectives of insurers on the  effects of the PPACA MLR requirements on their business practices.
Within CMS, the Center for Consumer Information and Insurance Oversight is  responsible for collecting the MLR data from insurers and overseeing the PPACA MLR  requirements. Insurers reported their 2011 and 2012 MLR data to CMS by June 2012 and  June 2013, respectively. The MLR data are based on the insurers’ experience for the prior  calendar year. administrative expenses, such as marketing and staff salaries. We also  examined the amount remaining after subtracting from premiums (less  taxes and fees) the costs associated with medical claims and quality  improvement activities as well as non-claims costs. Throughout this report  we refer to this amount as insurers’ premium surplus. We reviewed the  MLR data for reasonableness and consistency, including screening for  outliers. We also reviewed documentation about the MLR data and spoke  with CMS officials about steps taken to ensure data reliability. Based on  this review, we determined that the data used in this report were  sufficiently reliable for our purposes.
To examine the amount of rebates insurers paid based on their  experience in 2011 and 2012 as a result of the PPACA MLR  requirements, and how this amount would have changed with agents’ and  brokers’ commissions and fees excluded from the MLR and rebate  calculations, we similarly analyzed the 2011 and 2012 MLR data that  insurers reported to CMS. We used these data to analyze the amount of  rebates that insurers paid by insurance market, year, and state. We also  used these data to calculate the amount of rebates insurers would have  owed if the commissions and fees that insurers paid to agents and  brokers were not counted as a non-claims cost in calculating the MLR in  each year, assuming no other changes in insurers’ business practices in  response to this different method of calculating the MLR. To perform this  calculation, we subtracted the amount of commissions and fees that  insurers paid to agents and brokers who are not employed by insurers  from the MLR formula and recalculated the amount of rebates that   We conducted all of these  insurers would have owed as a result. analyses by insurance market, year, and state.
Because some insurers have employees who sell their plans, we conducted a separate  calculation of rebates taking into account this type of compensation. We used the MLR  data to subtract from the MLR formula the amount of salaries and benefits that insurers  paid to such employees, as well as the commissions and fees that insurers paid to agents  and brokers that they do not employ. insurers. We selected insurers to achieve variation in size, as  determined by the number of their enrollees; the concentration of their  health insurance business within the individual market; whether they paid  rebates based on their experience in 2011 or 2012; the number of states  in which they operated; and their not-for-profit status. In 2012, one of  the eight insurers we interviewed operated in all 50 states and had about  2 million enrollees, three each operated in between 4 and 13 states and  had between approximately 1 and 7 million enrollees, and the remaining  four operated in either 1 or 2 states and each had between approximately  70,000 and 675,000 enrollees. We used a structured interview protocol to  gather consistent information from insurers about their perspectives on  the effects of the PPACA MLR requirements on their business practices,  including the payment of agents and brokers, premium rates, quality  improvement activities, and decisions to leave any insurance markets.  Our findings are limited to those insurers we spoke with and are not  representative of the perspectives across all of the insurers reporting  MLR data to CMS.
We conducted this performance audit from October 2013 to July 2014 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 based  on our audit objectives.
subsections: section_title: Background
paragraphs: Under the PPACA MLR requirements, private insurers must report  annually to CMS their MLRs by each state and insurance market in which  they operate, as well as the dollar amounts for the components that make  up their MLRs, such as premiums. Insurers must pay rebates when their  MLRs do not meet or exceed the minimum applicable PPACA MLR  standards. Agents and brokers sell insurers’ plans to individuals and  employers and assist individuals and employers in various ways.
subsections: section_title: PPACA MLR Reporting Requirements
paragraphs: PPACA requires that private insurers offering group or individual health  insurance coverage report annually on the various components that are  used to calculate their PPACA MLRs, and each of these components  must be reported by state and by market. Private insurers first reported  this information in 2012, based on their 2011 experience. The markets  include large group, small group, and individual. Large and small group  employers are defined by the number of their employees. Prior to  PPACA, a small employer was defined in federal law as having a  maximum of 50 employees. From the time PPACA was passed in 2010  until 2016, PPACA gives states the option of continuing to define a small  group employer as having 50 or fewer employees, but starting in 2016,  they must define small employers as having from 1 to 100 employees.The individual market includes policies sold by insurers directly to  individuals. Insurers report their MLR data to CMS by entering information  on a standardized form that includes multiple data fields that make up the  MLR and rebate formulas.
The MLR data that insurers report to CMS include the following  components, as required by law.
Medical claims. These include claims paid and incurred for clinical  services and supplies provided to enrollees by physicians and other  clinical providers.
Expenses for quality improvement (QI) activities. These include  expenses for activities that are 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, reduce medical errors, and lower infection and mortality rates;  or (4) implement, promote and increase wellness and health activities.  Insurers are also allowed to include expenses for health information  technology required to accomplish these activities as well as a  percentage of their expenses for converting disease classification  codes.
Premiums. These include the sum of all funds paid by an enrollee  and employer, if applicable, as a condition of receiving coverage from  the insurer. These also include any fees or other contributions  associated with the health plan.
Federal and state taxes and licensing or regulatory fees. These  include federal income taxes, assessments, state insurance, premium  and other taxes, and regulatory authority licenses and fees. Federal  income taxes on investment income and capital gains are excluded.
Non-claims costs. These include all other insurer expenses—those  beyond medical claims, expenses for QI activities, and federal and  state taxes and licensing or regulatory fees. CMS defines non-claims  costs for the following categories: (1) agents’ and brokers’ fees and  commissions; (2) cost containment expenses, which reduce the  number of health services provided or the costs of such services, but  are not related to an activity to improve health care quality; (3) claims  adjustment expenses, such as office maintenance and supplies costs,  not classified as cost containment expenses; (4) salaries and benefits  that insurers pay to their employees who sell their plans; (5) other  taxes that may not be excluded from premium revenue; (6) other  general and administrative expenses, such as salaries and  advertising; and (7) community benefit expenditures, which include  expenses for activities such as health educational campaigns that are  available broadly to the public.
The remaining amount of premiums that an insurer does not spend on the  components of medical claims, QI activities, taxes and fees, and non- claims costs, will be referred to as the insurer’s “premium surplus” in this  report. Premium surplus includes profit and other reserved capital.
section_title: PPACA MLR and Rebate Formulas
paragraphs: The PPACA MLR is generally calculated by dividing (a) the sum of an  insurer’s medical claims and expenses for QI activities (the formula  numerator) by (b) the insurer’s premiums, after excluding from them the  amount of insurer’s federal and state taxes and licensing or regulatory  fees (the formula denominator). (See fig. 1.)
Some insurers, such as those with a small number of enrollees, are  permitted certain adjustments to their MLRs. These adjustments are  referred to as credibility adjustments, and they are added to, and thus   Credibility adjustments are provided to  increase, the insurer’s MLR.address the unreliability associated with calculating an MLR based on a  small number of enrollees.
Insurers with a small number of enrollees calculated their MLRs for 2012  based on their 2011 and 2012 experience combined. All insurers will calculate their MLRs for their experience in 2013 and subsequent years  based on data from a 3-year period. That is, insurers will add their data  for the year for which the MLR is being calculated to their MLR data for  the 2 prior years.
For each insurer, separate MLRs are calculated for each state and  market combination in which it does business and each MLR is used to  determine whether an insurer must pay rebates. Insurers must meet a  minimum PPACA MLR standard, generally 80 percent for the individual  and small group markets and 85 percent for the large group market, with  some exceptions. Specifically, the applicable PPACA minimum MLR  standard is based on one of the following:
85 percent in the large group market, 80 percent in the small group  market, and 80 percent in the individual market; a higher MLR standard if specified by law in the state in which the a Department of Health and Human Services (HHS)-approved,  adjusted MLR standard for a particular state’s individual market.
When an insurer’s PPACA MLR is lower than the applicable PPACA MLR  standard, the insurer must pay a rebate. The rebate amount is based on  the PPACA MLR rebate formula, as shown in figure 2. The difference  between the applicable PPACA MLR standard and the insurer’s MLR is  calculated and this difference is multiplied by the insurer’s premiums,  after federal and state taxes and licensing or regulatory fees are  removed.
There are different ways in which rebates can be paid out by insurers that  depend, in part, on whether rebates are associated with individual or  group market plans. In general, insurers can choose to provide rebates in  the form of a lump-sum payment or as a premium credit for the following  MLR year. Insurers in the individual market must provide rebates to their  enrollees while insurers in the small and large group markets may meet  this obligation by providing rebates to group policyholders, for example,  employers. In turn, group policyholders are responsible for allocating the  amount of rebate that is proportionate to the total amount of premium paid  by enrollees and may retain part of the rebate based on the amount of  premium that they contributed.
section_title: The Role of, and Insurer Payments to, Agents and Brokers
paragraphs: Agents and brokers sell plans for insurers and perform a variety of  functions on behalf of individuals and employers. According to the Bureau  of Labor Statistics, in 2012 there were approximately 337,000 jobs held  by insurance sales agents, which include agents and brokers working  independently as well as those who are employed by an insurer. Agents  and brokers provide assistance to individuals and employers in choosing  and enrolling in plans. For example, they may assess an individual’s  insurance needs and describe the characteristics of different plans that  best meet those needs. Agents and brokers may also provide assistance  after an individual or employee has enrolled in a plan, for example, by  helping enrollees communicate with health plans in trying to resolve  disputed medical claims or adding a new family member to a current plan.  Insurers who use agents and brokers to sell their plans typically pay them  based on a percentage of the plan’s premium or as a flat fee, for  example, determined by the number of enrollees in the plan.
section_title: Most Insurers Met or Exceeded the PPACA MLR Standards in 2011 and in 2012, and Insurers’ Spending on the MLR Components Varied by Market
paragraphs: More than three quarters of insurers met or exceeded the minimum  PPACA MLR standards in 2011 and in 2012, the median PPACA MLRs  for all insurers were about 88 percent in each year, and there was  variation across insurance markets. Insurers’ spending on enrollees’  medical claims and non-claims costs as a percentage of premiums varied  across insurance markets in 2011 and 2012.
subsections: section_title: Most Insurers Met or Exceeded the PPACA MLR Standards in 2011 and in 2012 and Median PPACA MLRs among All Insurers Were 88 Percent
paragraphs: Most insurers met or exceeded the PPACA MLR standards established  for the markets and state in which they operated, but group market  insurers were more likely to meet or exceed the standards than individual   In 2011, about 76 percent of insurers met or exceeded  market insurers.the minimum PPACA MLR standards and, in 2012, 79 percent of insurers  met or exceeded the standards. As an example of variation across the  markets, in 2012 about 86 percent of insurers in the large group market  and 81 percent of insurers in the small group market met or exceeded the  MLR standards, compared to 70 percent of individual market insurers.
The median PPACA MLRs in 2011 and in 2012 among all insurers were  about 88 percent, and the median for the large group market was higher  than that of the small group and individual markets. For example, in 2012  the median PPACA MLR for insurers in the large group market was about  91 percent compared to 86 percent in the individual market and   85 percent in the small group market. (See table 1.) We observed that  insurers’ median PPACA MLRs slightly increased from 2011 to 2012 and  the percent of all insurers meeting or exceeding the standards increased  by about 3 percentage points. However, these 2 years of data may not  reflect future patterns in MLRs. (See app. I for a listing of the PPACA  MLRs in each state for 2011 and 2012.)
section_title: The Percentage of Premiums Insurers Spent on Medical Claims and Non-Claims Costs in 2011 and 2012 Varied by Market
paragraphs: In 2011 and 2012, the percentage of net premiums that insurers spent on  their enrollees’ medical claims varied across insurance markets.  Specifically, insurers in the large group market spent a higher percent of  their net premiums on medical claims in both years compared to insurers  in the small group and individual markets. For example, in 2012 insurers  in the large group market spent about 89 percent of their net premiums on  medical claims compared to the 85 percent that individual market insurers  spent and the 84 percent that small group market insurers spent.
Our analysis of the data showed that for the other components of the  MLR formula—non-claims costs, premium surplus and QI expenses— there was more of a mix in variation across markets. We found that  insurers’ spending on non-claims costs as a percent of their net premiums  varied by insurance market, with insurers in the individual and small  group markets spending more than insurers in the large group market on  non-claims costs in 2011 and in 2012. For example, in 2012 insurers in  the individual market spent about 16 percent of their net premiums on  non-claims costs compared to the 7 percent that large group insurers  spent. With regard to premium surplus, our analysis showed that there  was also variation across the insurance markets in 2011 and in 2012, with  insurers in the individual market having less premium surplus than  insurers in both the small and large group markets. An insurer’s  premium surplus includes profit and other reserved capital but does not  account for any PPACA MLR rebates the insurer may have to pay to  enrollees. Insurers’ spending on QI expenses did not vary across  markets as insurers in each market spent about 1 percent of net  premiums on QI expenses in 2011 and in 2012. (See table 2.) While our  analysis showed that from 2011 to 2012 there were some shifts in the  percentage of spending on these different components among the  different markets and among all insurers, these two years of data may not  reflect future patterns in spending. (See app. II for a listing of insurers’  spending on the MLR components by state for 2011 and 2012.)
Three of the six non-claims cost categories generally comprised the  largest share of insurers’ spending, and there was some variation across  the markets in spending on each of these three categories. The three  categories that made up the largest share of insurers’ spending on non- claims costs were agents’ and brokers’ fees and commissions, other  general expenses, and other claims adjustment expenses. We found that  insurers’ spending on these three categories of non-claims costs varied  by market. Insurers in the small group market spent a higher share on  agents’ and brokers’ fees and commissions than insurers in the individual  and large group markets. For example, in 2012 small group insurers  spent about 42 percent of their total non-claims costs on agents’ and  brokers’ fees and commissions compared to the 23 percent that large  group insurers spent. In comparison, insurers in the individual and large  group markets spent a higher share of non-claims costs than insurers in  the small market on other general expenses, such as salaries, rent, and  travel; and on other claims adjustment expenses including office and  computer maintenance. (See table 3.)
section_title: Insurers Paid $1.1 Billion in Rebates in 2011 and $520 Million in 2012, and Would Have Paid About 75 Percent Less with Agents’ and Brokers’ Fees and Commissions Excluded, Absent Other Changes in Business Practices
paragraphs: Insurers paid about $1.1 billion in total rebates to enrollees and  policyholders who paid premiums in 2011, the first year that insurers were  subject to the PPACA MLR requirements, and about $520 million in  rebates in 2012. These amounts would each have decreased by about   75 percent had agents’ and brokers’ fees and commissions been  excluded from the MLR and rebate calculations, assuming insurers made  no other changes that could affect their MLRs. Of the $1.1 billion in total  rebates that insurers paid in 2011, insurers in the large group market paid  37 percent of this total, or $405 million in rebates, the largest amount  across the three insurance markets. Of the $520 million in total rebates  that insurers paid in 2012, insurers in the small group market paid the  largest amount in rebates (about $207 million). (See app. III for a listing of  the rebate amounts that insurers paid in each state for 2011 and 2012.)
We calculated the average rebate amount by dividing the total amount of rebates  insurers paid by the total number of individuals (including dependents) enrolled in their  plans. group market. (See table 4.) However, these two years of data may not  reflect future rebate patterns.
Our analysis of the data showed that rebates would have been reduced  by about 75 percent if agents’ and brokers’ fees and commissions were  excluded from the MLR and rebate calculations. Specifically, we found  that the rebates paid by insurers to enrollees and policyholders who paid  premiums in 2011 would have fallen from $1.1 billion to about   $272 million, and in 2012 would have fallen from $520 million to about  $135 million. There was variation in the impact of the recalculated MLRs  across the three markets. For example, in both years, the differences  between the actual and recalculated rebate amounts were greater, on a  percentage basis, in the small group market compared to the individual  market. (See table 5.) These rebate calculations are based on the  assumption that insurers did not make other changes during this time that  would have affected their MLRs. However, if the formula had been  different, insurers might have made different business decisions in those  years. (See app. IV for a listing of the rebate amounts that insurers  would have paid with agents’ and brokers’ commissions and fees  excluded from the MLRs in each state for 2011 and 2012.)
section_title: Most Insurers We Interviewed Reported Factors Other than PPACA MLR Requirements as Affecting their Business Practices
paragraphs: All eight insurers that we interviewed reported that they increased their  premium rates since 2011 due to a variety of factors, and most (five of the  eight) reported that the factors were largely unrelated to PPACA MLR  requirements. Key factors cited for making premium changes included:  trends in medical claims, competition with other insurers, the PPACA  requirements that insurers offer their plans on a guaranteed-issue basis  as well as provide essential health benefits in their plans, and the per- capita fees associated with PPACA’s reinsurance program.example, one insurer that has increased premiums in the individual  market since 2011 stated that its increased premiums were due in part to  the increased costs that the insurer told us was associated with it   For  providing coverage on a guaranteed-issue basis, as mandated under  PPACA. Three of the eight insurers reported that the PPACA MLR  requirements were one factor among a variety of factors that influenced  their decisions regarding premium rates, and two of these insurers told us  that the MLR requirements have generally moderated their premium  increases. For example, one insurer that has increased its premium rates  in the individual market since 2011 stated that without the PPACA MLR  requirements in place the insurer would have likely increased rates  further. Another insurer explained that if it does not meet the PPACA MLR  standards in its planning, it will adjust its premium rate increases to avoid  the associated expense and administrative work required to issue rebates  to enrollees.
We asked insurers about their business practices from 2011, when the PPACA MLR  requirements took effect, to the present. This time period is broader than the period for  which we analyzed MLR data. non-claims costs as well as offer more competitive premium rates for their  plans.
All eight insurers we interviewed told us that the PPACA MLR  requirements have not affected where they do business and have had no  effect, or a very limited effect, on their spending on QI activities since  2011. Two of the eight insurers we interviewed stated that they exited  certain insurance markets since the PPACA MLR requirements began,  but they did not attribute those decisions to the MLR requirements. For  example, one insurer who operated in all 50 states told us that it left the  individual market in three states in 2014, in part because of its concerns  in each market over maintaining a sufficient network of providers and  being able to provide affordable coverage. The insurer further explained  that a low number of enrollees in each market contributed to its decisions  to no longer operate in the three states. None of the insurers we  interviewed reported that the PPACA MLR requirements have generally  influenced their spending on QI activities since 2011, and all eight  insurers reported other influencing factors, such as customer and  employer demand for QI programs, competition among insurers, and the  goal of improving enrollees’ health outcomes, which in turn could lower  the use and costs of health care services.
Five of the eight insurers we interviewed also commented that the 2013  PPACA MLR calculation, which is based on a 3-year period including  2013 and the prior 2 years, will likely reduce some of the effects in the  MLR formula of year-to-year variability in enrollees’ medical claims.  Variability in medical claims occurs when actual and expected medical  claims differ, and one source of such variability is the effect of large  claims. One insurer, who paid rebates in 2011, noted that it would not  have owed rebates had the MLR formula been based on 3 years of  insurers’ experience. In comparison, another insurer told us that it will  likely owe rebates for 2013 because the MLR data it reported in 2011 and  2012 will be averaged into 2013. The insurer added that over time,  however, it believes the 3-year MLR formula should be beneficial for the  insurer by reducing the likelihood of owing rebates.
section_title: Agency Comments
paragraphs: We provided a draft of this product to HHS for comment. HHS responded  that it had no general or technical comments.
We are sending copies of this report to the Secretary of Health and  Human Services and other interested parties. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or 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 V.
section_title: Appendix I: PPACA Medical Loss Ratios by State in 2011 and 2012
paragraphs: This appendix presents information on insurers’ median PPACA medical  loss ratios by state and insurance market for 2011 (see table 6) and for  2012 (see table7).
section_title: Appendix II: Insurers’ Spending of Net Premiums by State for 2011 and 2012
paragraphs: This appendix presents information on insurers’ spending as a percent of  their net premiums, by state for all markets combined for 2011 (see   table 8) and for 2012 (see table 9).
section_title: Appendix III: PPACA Medical Loss Ratio Rebates by State for 2011 and 2012
paragraphs: This appendix presents information on the total amount of PPACA  medical loss ratio rebates that insurers paid to enrollees and  policyholders who paid premiums, by state and insurance market for 2011  (see table 10) and for 2012 (see table 11).
section_title: Appendix IV: Rebates Insurers Would Have Paid with Agent and Broker Payments Excluded from 2011 and 2012 Calculations
paragraphs: This appendix presents information on the amount of rebates that  insurers would have paid to enrollees and policyholders who paid  premiums with agents’ and brokers’ commissions and fees excluded from  the PPACA medical loss ratio and rebate calculations (absent other  changes in business practices), compared to the actual amounts that  insurers paid, by state for 2011 (see table 12) and for 2012 (see table 13).
section_title: Appendix V: 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; Romonda McKinney Bumpus; Pamela Dooley;  Julianne Flowers; and Laurie Pachter made key contributions to this  report.