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The Affordable Care Act and Medical Loss Ratios: Federal and State Methodologies

Issue Brief for Rutgers Center for State Health Policy & Center for Health & Pharmaceutical Law & Policy, with funding provided by a grant from the U.S. Department of Health and Human Services, May, 2012

Seton Hall Public Law Research Paper No. 2088900

142 Pages Posted: 21 Jun 2012 Last revised: 7 Sep 2012

Tara Adams Ragone

Seton Hall University School of Law, Center for Health & Pharmaceutical Law & Policy

Date Written: May 1, 2012

Abstract

This Policy Brief focuses on the medical loss ratio (“MLR” or “loss ratio”) provision in the Patient Protection and Affordable Care Act (“ACA,” or “Affordable Care Act”). As part of sweeping health care reform in 2010, Congress established MLR requirements for health insurance issuers offering coverage in the group and individual health insurance markets, including grandfathered but not self-insured plans, hoping to increase the value consumers receive for their premiums and to improve transparency. Medical loss ratio refers to a measure of the percentage of premium dollars that a health insurance company spends on health care as distinguished from administrative expenses and profit, including advertising, marketing, overhead, salaries, and bonuses. Prior to the ACA, some states but not the Federal government regulated loss ratios. The new Federal MLR law, which went into effect on January 1, 2011, for the first time established a national MLR standard, which varies from existing state MLR requirements in important ways.

This Policy Brief analyzes the new Federal MLR requirements and how they intersect with and affect New Jersey law and its insurance markets. After providing background on medical loss ratios and highlighting the major similarities and differences between the existing Federal and New Jersey MLR regulatory schemes, this Brief examines several requirements and policy options that New Jersey must consider as it implements the Federal requirements. This Brief also includes appendices that provide more extensive details regarding the components of the Federal MLR requirements, New Jersey’s MLR legal structure, and research regarding experiences with loss ratios nationally and in New Jersey, pre- and post-the ACA.

Keywords: Medical Loss Ratio, Affordable Care Act, New Jersey, health insurance regulation, preemption

Suggested Citation

Ragone, Tara Adams, The Affordable Care Act and Medical Loss Ratios: Federal and State Methodologies (May 1, 2012). Issue Brief for Rutgers Center for State Health Policy & Center for Health & Pharmaceutical Law & Policy, with funding provided by a grant from the U.S. Department of Health and Human Services, May, 2012; Seton Hall Public Law Research Paper No. 2088900. Available at SSRN: https://ssrn.com/abstract=2088900

Tara Ragone (Contact Author)

Seton Hall University School of Law, Center for Health & Pharmaceutical Law & Policy ( email )

One Newark Center
Newark, NJ 07102-5210
United States
973-642-8197 (Phone)
973-642-8799 (Fax)

HOME PAGE: http://law.shu.edu/Faculty/fulltime_faculty/Tara-Ragone.cfm

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