Health Insurers to Rebate $1.2B Due to Medical Loss Ratio

Some of the largest publicly traded and non-profit health insurers will have to cough up $1.2 billion in cumulative 2011 profits because of the medical loss ratio provision within the Patient Protection and Affordable Care Act, according to a Goldman Sachs analysis in a Bloomberg Businessweek report.

The MLR, which went into effect Jan. 1, 2011, is the amount of total revenue an insurer must spend on patient care and quality improvement as opposed to administrative costs and profits. Health insurers in large group markets must meet the MLR standard of 85 percent, while small group and individual market insurers must have an MLR of 80 percent.

Matthew Borsch, a Goldman analyst, said the for-profit health insurance market recorded roughly $21 billion in profit last year, and the rebates represent roughly 5.7 percent of that total, according to the report. Initially, the government estimated health insurers would have to refund $1.4 billion.

The Kaiser Foundation also released a report (pdf) today, estimating the MLR provision would cost insurers $1.3 billion, similar to Goldman's projections. Rebates would total $426 million in the individual market, $377 million in the small group market and $541 million in the large group market.

Eight of the largest publicly traded insurers will pay roughly $850 million, and UnitedHealth Group will dish have to dish out the most of any insurer at $307 million. Aetna and WellPoint will owe roughly $177 million and $94 million, respectively, while the non-profit Blue Cross Blue Shield plans will owe about $250 million.

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