Working Paper: NBER ID: w23353
Authors: Steve Cicala; Ethan M.J. Lieber; Victoria Marone
Abstract: A health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully-insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives analogous to cost of service regulation. Using variation created by the rule's introduction as a natural experiment, we find claims costs rose nearly one-for-one with distance below the regulatory threshold: 7% in the individual market, and 2% in the group market. Premiums were unaffected.
Keywords: Health Insurance; Medical Loss Ratios; Affordable Care Act
JEL Codes: I10; L51; L98
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Minimum Medical Loss Ratio (MLR) regulations (I18) | increase in claims costs for insurers below the regulatory threshold (G22) |
| Minimum Medical Loss Ratio (MLR) regulations (I18) | no significant change in premiums (G52) |
| Minimum Medical Loss Ratio (MLR) regulations (I18) | reduction in administrative spending (H59) |