Health Plans on ACA Exchanges May Be Underpaying MLR Rebates

by Leslie Small

Health insurers on the Affordable Care Act (ACA) exchanges are consistently overestimating the amount they spend on enrollee benefits as part of their medical loss ratio (MLR) reporting, resulting in "hundreds of millions of dollars in underpaid policyholder rebates," according to new research.

The ACA requires health insurers in the individual/small-group markets and large-group markets to spend at least 80% and 85%, respectively, of their premium income on medical care and quality improvement initiatives. If the percentage falls below those thresholds, insurers in those markets must pay a rebate to customers, and rebates have been rising considerably in the last three years, according to the Kaiser Family Foundation.

But according to research that is slated to be published in The Accounting Review, insurers could have been paying far more in rebates. Looking at MLR filings from 2003 through 2014, researchers found that in cases where firms had the incentive to manipulate their reports — such as when they would have to pay out rebates — 63% of firms overestimated claims, compared to 49% of firms with no such incentives. "Thus, we infer that approximately 14 percent of firms with the incentive to manipulate do so," wrote study authors Evan Eastman of Florida State University, David Eckles of University of Georgia, and Andrew Van Buskirk of Ohio State University.

Katie Keith, an attorney and research professor at Georgetown University's Center on Health Insurance Reforms, says she is "not really surprised" by the study's findings. "[With] any of these programs where it pretty much relies on insurer reporting, there's an incentive for many to game the system," says Keith, who was not involved in the study. "I'm not saying all of them game the system, but you don't even just see it in the commercial market, you see it in Medicare Advantage and all these other systems, too."

Krutika Amin, an associate director for the KFF's Program on the ACA, says the COVID-19 pandemic's generally positive impact on insurer finances has already heightened the likelihood that the sector will face increased regulatory scrutiny. "So I think there is definitely a conversation coming up around updating MLR requirements," she tells AIS Health.

From Health Plan Weekly