Medicare Advantage 2014 MLR Rule
The. U.S. Centers for Medicaid and Medicare Services (CMS) has released its proposed Medicare Advantage MLR rules for 2014. The proposal is based upon the mandatory requirements found in P.L. 111-152 (sister law of the Affordable Care Act, Health Care and Education Act).
Medicare Advantage 2014
As per federal law, CMS is required to implement section 1103 (Title 1, subpart B) of P.L. 111-152 which increases the Medical Loss Ratio rate from 80 to 85%. The law specifically states:
Section 1857(e) of the Social Security Act (42 U.S.C. 1395w– 27(e)) is amended by adding at the end the following new paragraph: ‘‘(4) REQUIREMENT FOR MINIMUM MEDICAL LOSS RATIO.— If the Secretary determines for a contract year (beginning with 2014) that an MA plan has failed to have a medical loss ratio of at least 85%—
‘(A) the MA plan shall remit to the Secretary an amount equal to the product of—
‘‘(i) the total revenue of the MA plan under this part for the contract year; and
‘‘(ii) the difference between .85 and the medical loss ratio;
‘‘(B) for 3 consecutive contract years, the Secretary shall not permit the enrollment of new
‘‘(C) the Secretary shall terminate the plan contract if the plan fails to have such a medical loss ratio for 5 consecutive contract years.’’.
This provision is of course designed to make insurers actually pay for medical care (not use premiums for company profits) which is a very good thing for the individual consumer and healthcare provider. This provision will also greatly harm the profits of insurance companies and that is even better.
Affect on Insurance Stock Prices
This is having a huge impact (as it should) on the current stock prices of insurance companies. Here are current prices as of 2:18 PM CST February 19, 2013:
Aetna – down 1.25% (CNBC.com)
Cigna - down 1% (CNBC.com)
Humana – down 6.09% (down 17.63% YTD) (CNBC.com)
United Healthcare - down 1.19% (CNBC.com)
Investors can expect the volatility in this sector to continue as CMS will severely regulate health insurance companies who sell Medicare Advantage plans.
Medicare Advantage MLR Rule
The recently released rule put out by CMS is viewable. To read the rule, please click HERE