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Health Plan Medical Loss Ratios


Health plans and regulators have retained BRG experts on engagements that involved assessing health plans’ medical loss ratios (MLR; medical expenses divided by premium revenue). State regulators have used MLR calculations for decades to assure plan solvency and help develop and monitor the pricing of health insurance products.

Under the Affordable Care Act, as of 2011 commercial health plans must provide a rebate to consumers if the percentage of premiums for medical expenses and some quality improvement costs is lower than 85 percent in the large group market and 80 percent in the small and individual markets.

BRG experts have performed the following analyses related to MLR calculations:

  • Evaluation of appropriateness of expenses included in the calculation (e.g., administrative, subcapitation, related-party transactions)
  • Allocation of expenses to benefit plans
  • Calculation of incurred but not reported (IBNR) liability
  • Allocation of encounter cost for capitated services
  • Calculation of premium and enrollment per benefit plan
  • Assessment of effectiveness of a plan’s medical management, provider contracting, and claims adjudication

A state regulator has retained BRG to review the operations of a number of health plans and assess the adequacy of revenue (the MLR denominator) and effective cost containment (the numerator of MLR). In conjunction with these assignments, BRG has obtained historical claims and encounter data, provider contracts, line of business premium revenue, and IBNR calculations; analyzed revenues and expenses and compared them to peer health plans to identify outliers; investigated outliers by performing provider contract reviews, claims payment accuracy reviews, and assessment of medical management and revenue benchmarking; and discussed the results of our reviews with both plan management and the regulator. Our reviews have resulted in revenue adjustments and expense reductions by health plans.

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