Regulating the medical loss ratio: Implications for the individual market

Objective: To provide state-level estimates of the size and structure of the US individual market for health insurance and to investigate the potential impact of new medical loss ratio (MLR) regulation in 2011, as indicated by the Patient Protection and Affordable Care Act (PPACA). Study Design: Using data from the National Association of Insurance Commissioners, we provided state-level estimates of the size and structure of the US individual market from 2002 to 2009. We estimated the number of insurers expected to have MLRs below the legislated minimum and their corresponding enrollment. In the case of noncompliant insurers exiting the market, we estimated the number of enrollees that may be vulnerable to major coverage disruption given poor health status. Results: In 2009, using a PPACA-adjusted MLR definition, we estimated that 29% of insurer-state observations in the individual market would have MLRs below the 80% minimum, corresponding to 32% of total enrollment. Nine states would have at least one-half of their health insurers below the threshold. If insurers below the MLR threshold exit the market, major coverage disruption could occur for those in poor health; we estimated the range to be between 104,624 and 158,736 member-years. Conclusion: The introduction of MLR regulation as part of the PPACA has the potential to significantly affect the functioning of the individual market for health insurance.