The Medical Loss Ratio: When ACA Turns Payors into Spenders


The Medical Loss Ratio: When the ACA Turns Payors into Spenders

Six Areas in Which Insurance Companies Should Make Some Quality Investments. Now.

October 16, 2020
by Jonathon Swersey
MLR hero

Well, we made it—we’re in the fourth quarter of 2020, a year I think many healthcare professionals would like to forget. But even as we all deal with day-to-day management challenges, in part related to COVID-19, our payor clients have an opportunity to address the impact the pandemic has had on their finances and accelerate their innovation pipelines to have a healthy 2021.

We all know that patient visits have curtailed, driven by: (a) providers who cancelled elective procedures to better meet the urgent needs of COVID-19; and (b) patients who were reluctant to seek care out of fear of being exposed to the virus. These two factors have led to a precipitous decline in claims paid for by private insurers. Yes, companies such as United Health Group, Cigna, Aetna, and Human have seen tremendous profits, but those profits aren’t really a cause for leaders to celebrate.


Part of the far-reaching Affordable Care Act requires that payors spend 80%, and sometimes 85%, of the insurance premiums they collect on medical expenses: The so-called medical loss ratio (MLR). If insurers don’t pay out enough in claims in a given calendar year, they are required by the law to refund premiums to their customers. Additionally, reduced payouts and refunds have the potential to impact underwriting negotiations for renewal contracts.

Sooner or later, that deferred elective care will have to be delivered; people can only put off that hip replacement for so long. In some cases, neglected chronic conditions will evolve into acute health problems and be more expensive to address downstream. A friend of mine is a frontline anesthesiologist who told me what he’s seeing in the emergency department. His patients are far sicker than they used to be (and, he tells me, this goes beyond COVID-19). For instance, diabetic patients who used to come in to treat a foot ulcer have delayed care so long that the only option is amputation. Combine the impact of postponed care with potential premium pressure, and today’s profits may turn into tomorrow’s losses.

So, what’s a forward-thinking healthcare leader to do? Well, the ACA MLR has another feature that will be helpful here. Spending on quality improvement counts dollar-for-dollar the same as a medical payment, in terms of bumping up the numerator of the MLR. According to the Kaiser Family Foundation, investments that “lead to measurable improvements in patient outcomes or patient safety, reduce hospital readmissions, promote wellness, or enhance health information technology in a way that improves quality, transparency, or outcomes” count as quality improvement.

Therein lies the answer: Use this year’s gains to accelerate progress on 2021 goals. We’re working with a range of our clients who are spinning up quality improvement initiatives. At EPAM Continuum, we’re jamming with them to do a rapid-fire prioritization exercise while execs seek to add to their 2020 budgets. Some of the areas we’re exploring include:

1. Member Engagement. We’re applying human-centered insights to members' functional and emotional needs to develop new technologies that improve engagement in chronic condition management

2. Provider Experience. We’re creating differentiated experiences for our providers that help simplify their engagement with our payor clients by creating tools that fit with their workflow and help ensure they have a full panel.

3. Prior Authorization (PA) Modernization. The PA process could use much improvement. We’re using technology to simplify the PA workflow and reduce both false positives and false negatives.

4. Health Span for Women of Color. It’s no secret that the healthcare outcomes for Black women in this country are far below those of their white counterparts. So, we’re actively exploring ways to understand why and develop new programs and experiences designed to improve outcomes for women of color.

5. Multi-Health Integration. We believe that by combining deep human insights with data synthesis from medical, pharmacy, behavioral, and dental records, we can develop customized health plans at lower costs with improved outcomes

6. Reimagining Care in the Community. We’re working to redefine the kinds of care that can be delivered outside of the hospital, leveraging home-based devices that can help improve remote patient monitoring

So get to work, insurance people! Right now is the time for payors to invest in quality improvements and kick up the value of the MLR numerator. Do the math, and get the win. Follow our advice and you will soon admit: Quality never felt quite so beneficial.

Photo by Austin Chan on Unsplash

filed in: healthcare, customer experience, employee experience

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