Health Insurers’ Claims and Premiums Under the Affordable Care Act: Evidence on the Effects of Bright Line Regulations

The Affordable Care Act's medical loss ratio (MLR) provisions require that health insurers spend a minimum percentage of premiums on medical costs, thereby limiting administrative costs and profits. Analyses of annual MLR changes indicate that plans both below and above the minimum MLR manage their ratios toward the minimum standard. Our finding that plans with excess MLR manage their MLRs downward suggests that compliant plans exploit their MLR “cushions,” thus increasing profits while typically continuing to satisfy the MLR requirement. We show that 52 percent of noncompliant plans in a given year subsequently become compliant, while 14 percent of compliant plans subsequently become noncompliant.