By Beth Kutscher, Crain News Service
WASHINGTON (Sept. 13, 2013) — The Patient Protection and Affordable Care Act saved consumers $1.7 billion on health insurance premiums last year, according to a Health & Human Services report, while a separate study found that ACA provisions squeezed insurers' profits.
The HHS report cites two provisions directly affecting health plan premiums — a rate review for premium increases that exceed 10 percent and the medical-loss ratio standard that caps how much of premium revenue insurers can use for administration, marketing and profits.
In its report, HHS cites an analysis from the Office of the Assistant Secretary for Planning and Evaluation, which found that in 2012, insurers requested smaller rate increases in the individual and small group markets.
The report said the average rate request in the individual insurance market dropped to 7.1 from 8.1 percent — a 12-percent decrease — and in the small group market to 4.7 from 5.8 percent — a 19-percent drop. The data excluded the large group market.
Moreover, since insurers must justify rate increases above 10 percent, payers submitted fewer requests for large premium hikes. Only 26 percent of rate requests exceeded 10 percent last year, down from 43 percent in 2011, the report found.
The analysis estimates that rate reviews saved consumers $1.2 billion on their premiums compared with the rates that insurers originally requested.
HHS collects data on premium increases through its Rate Review Grant Program, which awards money to states to review proposed rate hikes in the individual and small group markets.
In addition to the rate review program, HHS calculated that consumers saved another $500 million through the healthcare law's medical-loss ratio provision (PDF), which requires health plans to spend at least 80 percent of the money they bring in from premiums on medical care and quality improvement activities. In the large group market, the requirement is 84 percent.
If insurers go above that threshold, they must pay a rebate to consumers in the form of a mailed check, a reimbursement to the account used to pay the premium or a reduction in future premiums. Employers receiving a rebate must apply that money in a way that benefits their employees.
HHS calculates that 77.8 million consumers saved $3.4 billion on their premiums because of the rule, and 8.5 million people received rebates totaling $500 million, or an average of $100 a family.
A separate study in this month's issue of Health Affairs found that the medical-loss ratio standard has had the effect of straining operating margins for insurers, particularly at for-profit companies operating in the individual market.
The study looked at medical-loss and administrative cost ratios in 2010 and 2011 — directly before and after the 80/20 rule went into effect.
In the individual market, medical-loss ratios increased 5.5 percentage points — meaning insurers spent 5.5 percent more of premium revenue on medical care and quality improvement — while the administrative cost ratios declined 2.6 percentage point and operating margins dipped 1.3 percentage points.
The effect was most pronounced at for-profit insurers, which saw their medical-loss ratios increase 7.7 percentage points, with administrative costs and operating margins declining 2.9 and 2.2 percentage points, respectively.
In the large group market, in contrast, operating margins remained in the black, increasing 0.7 percentage points (1.2 percentage points at for-profits) while medical-loss ratios — which were 87.6 percent in 2010 — dropped to 86.9%. But the numbers were not statistically significant.
Beth Kutscher is a reporter with Modern Healthcare, a Crain Communications Inc. publication, where this article first appeared.