Health Insurer Use of Quality Expenses to Achieve a Minimum Medical Loss Ratio Requirement

The Patient Protection and Affordable Care Act (ACA) included a provision whereby health insurers in the individual and group markets must spend a certain portion of premiums on the provision of medical services. Non-compliant insurers pay rebates to policyholders. The calculation of this minimum required medical loss ratio (MLR) includes taxes and regulatory fees as well as expenditures incurred for improving health care quality. We use an insurer-state-year panel of statutory filings from the National Association of Insurance Commissioners to evaluate the quality expenses allowable in the calculation of the MLR for a sample of insurers writing health business from 2011-2017. We find that, in certain lines of business, insurers below the minimum MLR requirement report significantly more expenditures on quality per member.