The Medical Loss Ratio’s Negative Impact on Small Businesses

This morning the House Small Business Committee’s Investigations, Oversight and Regulations Subcommittee held a hearing to evaluate the Medical Loss Ratio’s (MLR) impact on small businesses.  The MLR provision is part of the Affordable Care Act and requires insurance companies spend at least 80 percent of premium dollars on clinical care.

Throughout the hearing, concerns were raised that the MLR may cause insurance companies to reduce health plan offerings.  While larger companies may choose to self-insure as a result, most small businesses will be faced with less competitive markets.

In addition to plan availability, the hearing’s witnesses voiced concern that the rule acts as an incentive to raise insurance premiums. Grace-Marie Turner of the Galen Institute noted that insurance companies will raise premium costs in order to maximize the amount of money available for administrative costs.  She said this will especially hurt high-deductible plans because the 80 percent threshold counts only medical care costs paid by the insurance companies, and not the insured individual themselves.

The MLR’s likely negative impact on health plan options and the potential perverse incentive on  premiums lands the regulation squarely on the list of the top 5 healthcare regulations that should be repealed in 2012.