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July 2010 St@teside

New Brief: Recognizing Destabilization in the Individual Health Insurance Market


The medical loss ratio (MLR) is an indication of how much of the premiums collected from consumers are used to pay for health care services and clinical quality. In June, the Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization (HCFO) program convened an invitational meeting of experts, including industry analysts, insurers, actuaries, state regulators, federal policymakers, and academic researchers, to discuss the medical loss ratio standard in the individual insurance market and provisions within the Patient Protection and Affordable Care Act (PPACA) for addressing any potential market destabilization.* This brief is an overview of the meeting discussion. 

The years 2011 to 2014—after MLR rebates go into effect but before guaranteed issue and the elimination of medical underwriting are implemented—will be both a critical and challenging time for state regulators. It is during this transition period, if markets become unstable, that consumers in the individual market may be at risk of losing coverage and find they are unable to obtain replacement coverage. During this transition period, state regulators will need to apply considerable judgment, rooted in understanding of local circumstances, to appropriately recognize if a market is at risk of destabilizing.

Potential warning signs of market destabilization include:  

  • Insurers surrendering licenses 
  • Closing blocks of business
  • More assumption reinsurance
  • Changes in marketing
  • Complaints (brokers, consumers)
  • Demographic changes in coverage (sudden declines in coverage)
  • Increased applications to state high risk pools 
  • Premium volatility
  • Benefit design changes (offering only high-deductible plans)

For additional information, please contact  

* The Patient Protection and Affordable Care Act (PPACA) was enacted on March 23, 2010. Under the new law, not later than January 1, 2011, insurers are required to meet minimum loss ratios (85 percent in the large group market; 80 percent in the small group and individual markets) or provide rebates to enrollees.  For the individual market, the law gives the Secretary the authority to make adjustments to the percentage if she determines that the application of the 80 percent standard may destabilize that market in a state.