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Health Insurers’ Claims and Premiums Under the Affordable Care Act: Evidence on the Effects of Bright Line Regulations

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  • Sandra Renfro Callaghan
  • Elizabeth Plummer
  • William F. Wempe

Abstract

The Affordable Care Act's medical loss ratio (MLR) provisions require that health insurers spend a minimum percentage of premiums on medical costs, thereby limiting administrative costs and profits. Analyses of annual MLR changes indicate that plans both below and above the minimum MLR manage their ratios toward the minimum standard. Our finding that plans with excess MLR manage their MLRs downward suggests that compliant plans exploit their MLR “cushions,” thus increasing profits while typically continuing to satisfy the MLR requirement. We show that 52 percent of noncompliant plans in a given year subsequently become compliant, while 14 percent of compliant plans subsequently become noncompliant.

Suggested Citation

  • Sandra Renfro Callaghan & Elizabeth Plummer & William F. Wempe, 2020. "Health Insurers’ Claims and Premiums Under the Affordable Care Act: Evidence on the Effects of Bright Line Regulations," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(1), pages 67-93, March.
    • Handle: RePEc:bla:jrinsu:v:87:y:2020:i:1:p:67-93
    DOI: 10.1111/jori.12272
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    Cited by:

    1. Mark Shepard & Ethan Forsgren, 2023. "Do insurers respond to active purchasing? Evidence from the Massachusetts health insurance exchange," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 9-31, March.
    2. Patricia H. Born & Evan M. Eastman & E. Tice Sirmans, 2023. "Managed care or carefully managed? Management of underwriting profitability by health insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(1), pages 5-31, January.

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