title: Is the medical loss ratio a good target measure for regulation in the individual market for health insurance?
abstract: Effective January 1, 2011, individual market health insurers must meet a minimum medical loss ratio (MLR) of 80%. This law aims to encourage 'productive' forms of competition by increasing the proportion of premium dollars spent on clinical benefits. To date, very little is known about the performance of firms in the individual health insurance market, including how MLRs are related to insurer and market characteristics. The MLR comprises one component of the price-cost margin, a traditional gauge of market power; the other component is percent of premiums spent on administrative expenses. We use data from the National Association of Insurance Commissioners (2001-2009) to evaluate whether the MLR is a good target measure for regulation by comparing the two components of the price-cost margin between markets that are more competitive versus those that are not, accounting for firm and market characteristics. We find that insurers with monopoly power have lower MLRs. Moreover, we find no evidence suggesting that insurers' administrative expenses are lower in more concentrated insurance markets. Thus, our results are largely consistent with the interpretation that the MLR could serve as a target measure of market power in regulating the individual market for health insurance but with notable limited ability to capture product and firm heterogeneity.
authors.affiliation: Division of Health Policy and Management, School of Public Health, University of Minnesota, Minneapolis, MN, USA.
authors.forename: Pinar
authors.initials: P
authors.lastname: Karaca-Mandic
authors.forename: Jean M
authors.initials: JM
authors.lastname: Abraham
authors.forename: Kosali
authors.initials: K
authors.lastname: Simon
mesh_terms: D017677:Age Distribution; D003365:Costs and Cost Analysis; D004465:Economic Competition; D033161:Government Regulation; D006304:Health Status; D006801:Humans; D007343:Insurance Carriers / Q000191:economics* / Q000331:legislation & jurisprudence*; D007348:Insurance, Health / Q000191:economics* / Q000331:legislation & jurisprudence*; D017059:Models, Econometric; D058991:Patient Protection and Affordable Care Act; D011057:Politics; D044469:Racial Groups; D012111:Residence Characteristics; D014481:United States
keywords: health insurance; individual market; medical loss ratio