The MLR was established by the Affordable Care Act of 2010. It requires Individual and Small Group Health Insurers to spend 80% or more of the premium dollars they bill within a calendar year for health care and quality improvements. For Large Group Health Insurers, the requirement is 85%. If an insurer does not meet that spending average, the insurer is required to issue rebates back to the insureds to meet the MLR requirements. It is essential to realize that the calculation for any plan year is a three-year (the current year and the prior two years) rolling average of the MLRs. Therefore, the rebates BCBSIL is issuing for the plan year 2020 reflect an average of the MLRs’ from plan years 2018, 2019, and 2020.
BCBSIL was not the only health insurer issuing rebates. Nationally, insurers were having issues pricing plans between 2014-2016 in the Individual Market and thus missed margin in the Individual Health ACA Market for those years. During this time, many insurers left the Individual Market altogether! As the carriers stepped up their rates and adjusted their plan designs and networks over several consecutive years, the new ACA-rated Individual Pool finally met margin in late 2017. Carriers are required to file their rates nearly a year in advance of the effective dates. Therefore, to be able to “meaningfully adjust the rates for the pool,” the experience needs to exist for about 18 months before pricing can be adjusted to make any MLR impactful corrections (up or down) in the pricing models. Now that carriers have normalized their rates, plans and networks have had several years of individual market claims experience in “the new ACA environment,” we hope that rates will be more accurately set in the future, thus not requiring rebates!
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