Insurers must pay rebates when their  MLRs do not meet or exceed the minimum applicable PPACA MLR  standards. The markets  include large group, small group, and individual. The MLR data that insurers report to CMS include the following  components, as required by law. Expenses for quality improvement (QI) activities. 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. Some insurers, such as those with a small number of enrollees, are  permitted certain adjustments to their MLRs. 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. The Role of, and Insurer Payments to, Agents and Brokers

Agents and brokers sell plans for insurers and perform a variety of  functions on behalf of individuals and employers. Most Insurers Met or Exceeded the PPACA MLR Standards in 2011 and in 2012 and Median PPACA MLRs among All Insurers Were 88 Percent

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. The Percentage of Premiums Insurers Spent on Medical Claims and Non-Claims Costs in 2011 and 2012 Varied by Market

In 2011 and 2012, the percentage of net premiums that insurers spent on  their enrollees’ medical claims varied across insurance 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. 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. 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

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. 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. 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. Most Insurers We Interviewed Reported Factors Other than PPACA MLR Requirements as Affecting their Business Practices

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. 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. 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. Agency Comments

We provided a draft of this product to HHS for comment. HHS responded  that it had no general or technical comments. Appendix IV: Rebates Insurers Would Have Paid with Agent and Broker Payments Excluded from 2011 and 2012 Calculations

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).
Why GAO Did This Study

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.

What GAO Found

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.