Medical loss ratio restrictions may not be the best way to reduce health costs, but federal and state lawmakers are increasingly turning to legislating MLR as a way to contain expenses.
Forcing insurers to maintain a certain spending percentage on medical care is an easy win and on the surface sounds like a fair plan. However, it's not that simple.
For instance, individual insurance plans usually have to invest more on marketing, consumer outreach, and customer service than group plans so requiring both plans to comply with the same rules isn't fair.
Nevertheless, that's the world health insurers are living in and the recently approved health reform package will require some plans to spend 85% directly on patient care. This will have many insurers scrambling to find ways to reduce overhead costs.
"They are going to have to really put more effort around what that 15% looks like on the administrative side so they can maintain some level of margin," says Ned Moore, CEO of Portico Systems, an Blue Bell, PA-based Integrated Provider Management solutions company.
Here are three ways insurers can look to reduce overhead costs and get into line with the new MLR requirements:
Know your MLR. Before understanding the issue and knowing how to respond, health insurers need to compute their plans' MLR. There is great MLR variations depending on plan, region, and state regulations so all insurers can't expect that they are in compliance with the 85% MLR.
If they are within a couple percentage points, a review of processes and streamlining systems could help reach the 85% goal. However, those a long way off will have to take a much larger approach.
"If I'm running a decent margin and my administrative cost structure is built around 83% MLR for a Medicaid patient, I now have to figure out how I am going to get into that 85% range while my membership opportunity and growth will come from those types of members. That will put more pressure on how to wring out some administrative costs so I can maintain reasonable margin levels, while also seeing the increased opportunity around membership with millions of members coming into these plans over the next few years," says Moore.
Review and improve workflow. Health plans need to review their workflow and find what is labor intensive and how care can be provided cheaper. Automation can come in the form of administrative simplification, such as real-time claims adjudication that could lead to lower personnel costs, better efficiencies, and better relations with providers, who will appreciate knowing immediately which claims are being rejected.
Simplify provider contracts. Brenda Snow, executive vice president of strategic planning at Firstsource Solutions Limited, a business outsourcing company, says healthcare under managed care got very complex as health plans implemented carve outs and tiering, which added costs.
By standardizing provider contracts and automating the system, health insurers could reduce labor costs associated with compiling and differentiating numerous provider contracts.
Moore says he's seeing plenty of insurers reviewing their provider contracts and managing provider networks.
"We're seeing a lot of innovative plans looking at the provider support structure and trying to figure out how can we maintain our competitive advantage without dramatically increasing our cost structure in the process," says Moore.
Rather than simply looking for one magic bullet, health insurers need to first understand the issue and then realize that reducing administrative costs is more than just outsourcing jobs and responsibilities.
"It's not just outsourcing, but improvements, automation, and a level of detail should be done. Don't think a single solution will solve it. Insurers need to look at a number of different ways to glean these savings," says Snow.