Cost of Service Regulation in U.S. Health Care: Minimum Medical Loss Ratios

Steve Cicala, Ethan Lieber and Victoria Marone

No 23353, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully-insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives analogous to cost of service regulation. Using variation created by the rule's introduction as a natural experiment, we find claims costs rose nearly one-for-one with distance below the regulatory threshold: 7% in the individual market, and 2% in the group market. Premiums were unaffected.

JEL-codes: I10 L5 L98 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-hea, nep-ias and nep-reg
Note: EH IO PE
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Citations: View citations in EconPapers (4)

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