Medical Loss Ratio

The Affordable Care Act (ACA) imposed a financial measurement on health insurance companies called the Medical Loss Ration (MLR). This is the ratio of how much the company pays out in benefits to how much it receives in premiums. The insurance companies must have a MLR of at least 80% for individual health insurance policies.

What does this mean?

For every $100 the company receives, it must pay out $80. That leaves only $20 to run the company. That is not $20 for profit. That $20 has to cover employee salaries, buildings, taxes, marketing, and profit. The average profit margin of the health insurance industry is 5%. That is less than Pepsi, General Mills, Kellogg, Campbell Soup, Bed Bath & Beyond, Walt Disney, Mattel, CBS, Apple, and Nike.

What Are the Implications of an 80% Medical Loss Ratio

Smaller Networks with Fewer Doctors and Hospitals

The most visible effects the consumer will see are

  • Insurance networks (doctors and hospitals who accept your insurance plan) are smaller and
  • The prescription drug list (Formulary) is smaller.

In order to achieve the 80% Medical Loss Ratio, the insurance companies have lowered the reimbursement rate for services provided by doctors and hospitals under Affordable Care Act (ACA) insurance policies.

They have asked the doctors and hospitals to sign network agreements that pay them much less than in the past.

As a result many doctors and hospitals are refusing to accept ACA or Obamacare policies. They can not stay in business if they lose money.

Consumers are seeing that many doctors they used in the past no longer will take them if they have an ACA Obamacare policy. Nationally known hospitals have refused to join the Obamacare (ACA) networks. As a result, some of the best care is not available to patients with ACA (Obamacare) policies.

Smaller Prescription Drug Formulary

The list of prescription drugs an insurance policy will cover is called a Formulary list. Prescription drugs are included on a Formulary based on their efficacy, safety, and cost-effectiveness.

The Formulary list is reviewed quarterly by a pharmacy and therapeutics group. The group may

  • Add drugs or
  • Remove drugs or
  • Drugs may also be moved to a different cost Tier.

To achieve the 80% Medical Loss Ratio under the Affordable Care Act, the number of drugs in the formulary list has been reduced. Many plans have a formulary list that is very heavily weighted toward generic drugs. More than 90% of prescription drugs have generic equivalents. More than 82% of all prescription drugs dispensed are generics. You may find that the brand name drug you have been using is no longer covered under your new ACA Obamacare policy.