The Patient Protection and Affordable Care Actintroduced medical loss ratio rules into the U.S. health caresystem with the underlying intent to cap profits—and subsequentlycosts—by requiring each carrier to have a medical loss ratio of 80percent for most small employer and individual group policies, and85 percent for large employer group policies.

In practical terms, MLR is a measurement of both the medicalclaims and activities that improve the quality of enrollee care. Ifcarriers can show that at least 80 percent of the income theyreceive from premiums is used toward medical claims or activitiesthat improve care quality, then they've met the MLR rule; it'sassumed the remaining 15 percent to 20 percent of premium dollarsis used to pay overhead expenses, including marketing, salaries,administrative costs, commissions and profits.

That 15 percent to 20 percent seems like a fairly healthy profitmargin until we compare it with the 40 percent profit marginsinsurance companies were pulling in before to the implementation ofPPACA.

The federal government has set minimum MLR rules, and somestates have their own MLR rules, as well. And, in fact, in 2012—thefirst year of true MLR application—many health insurancesubscribers found small checks in their mailboxes for premiumrebates, the result of premium dollars outside the allowable 20percent profit margin that hadn't been re-invested in health carequality or used for claims. Some of those MLR rebate payments weresent to employer groups, while others were redistributed directlyto consumers.

However, in 2013, MLR rebate checks were much rarer, and theyseem to have disappeared altogether from the landscape thisyear—even as speculation emerges that the government might considerapplying MLR rules to voluntary plans in the near future.

What's happened since 2012? Some experts say—rathercynically—that health insurance carriers have become savvier abouthow to portray their earnings. One industry analyst mentions amajor health insurance carrier that's building an app for seniorenrollees in its care plan. Although investing in new technologyisn't necessarily bad in and of itself, the analyst points out thatit's not necessarily the best use of funds for that patientpopulation; perhaps the insurance company could better serve apatient in that demographic by increasing the number of paidphysical-therapy sessions for a broken hip.

Another industry expert notes that some insurance companies arequestioning whether a procedure should be classified as a medicalor administrative procedure (and thus whether they should be on thehook for payment),particularly when a physician performs anadministrative task or has an ambiguous title, such as “chiefexecutive officer” or “medical director.”

In other words, many health care experts believe the MLR rulesare no longer as effective as they were intended to be—and becauseinsurance carriers have been exploring the existing loopholes inthe MLR rules for several months now, the horse has essentiallyleft the barn, and implementing MLR rules on voluntary plans won'thave the cost-saving effects the federal government wants.

Illustration ©theispot.com/ Jing Jing Tsong