Medical Loss Ratio: Getting Ready for Rebate Payments
Report Summary
Medical Loss Ratio: Getting Ready for Rebate Payments
Health plans will soon be required to provide rebates to plan participants—rebates that few are prepared to calculate and issue.
Boston, August 30, 2011 – A new report from Aite Group analyzes regulatory changes to medical loss ratios (MLRs) that will impact U.S. health plans, specifically with regard to rebate payments. Based on more than 30 Aite Group conversations with industry participants at health plans, solution vendors, and financial institutions, the report provides insight into best practices for tackling the important aspects of rebate calculation, including cost considerations and steps that health plans are taking to counter the guidelines. It also discusses key factors for health plans seeking a solution that processes MLR rebate payments.
Medical loss ratios have for decades been the measure of quality and efficiency in the U.S. healthcare industry. While the MLR system was designed to measure the financial performance of health plans, critics have long argued over the effectiveness of the MLR system in analyzing the key organizational capabilities of a health plan. The Obama administration, believing the system to be mismanaged, has reevaluated the guidelines on MLRs and standardized them in the Patient Protection and Affordable Care Act (PPACA).
In order to limit health-plan skimming on medical costs, the PPACA has begun requiring that health plans spend on patient care 85% of the money collected by large health plans via premiums and 80% of the money collected by individual or small-group plans via premiums. The balance can go toward health plans’ administrative and marketing expenses.
“As the MLR system becomes more highly regulated, many health plans—especially tier-two and tier-three plans—are finding themselves ill-equipped to handle mandatory changes,” says Kunal Pandya, senior analyst with Aite Group and author of this report. “For example, 9 million Americans may be eligible for rebate payments from their providers. To manage the process of calculating and issuing MLR rebates, health plans are looking to vendors, benefit administrators, and financial institutions that specialize in sub-accounting and payments processing. A well-designed solution should be able to address the primary need of an MLR rebate processing platform, which is to manage rebate data, payments history, associated documentation, and reporting requirements on a single platform.”
This 17-page Impact Note contains three figures. Clients of Aite Group's Health Insurance service can download the report.