by Emily Washington

To say that the Affordable Care Act (ACA) has caused confusion is perhaps the biggest understatement in quite some time. The medical-loss ratio (MLR) is one aspect of the law that has come under frequent scrutiny. The MLR, which is one of the earliest active provisions of the law, has been discussed again lately, with the considerable administrative costs associated with the implementation of the ACA and the business functions needed to support such a landmark launch.

Last month, the Dept. of Health and Human Services proposed some leniency on the MLR formula to account for the high administrative costs associated with the law’s rollout. The status of that proposal is not yet known and may not be for some time. Insurers fared much better last year, issuing a total of just over $500 million in rebates to customers, down from $1.1 billion in the previous year. But the administrative burden of the ACA rollout is expected to bump the rebate figure higher this year, pending the proposed changes.

Even if changes are approved, they will be temporary. So it is best for insurers to plan as if no relief is in sight. Since 2010, those payers who have paid real-time, 365-day attention to their MLR reporting have been in the best position to avoid costly rebates. We have developed a checklist for companies to keep tabs on their MLR status throughout the year.

The Challenge

Insurers need to make sure that their MLR reporting systems reflect their source systems and are audit-ready. Further, MLR data must appear accurate in internal, regulatory, and market-facing reports. Typical challenges include source systems that are inconsistent and not conducive to audits, a limited ability to produce and access timely reports, and undetected points of failure.

Effective MLR monitoring captures data from various systems to monitor and calculate MLR in real time. Data from membership, claims, and billing systems need to be monitored constantly to calculate MLR in real time and ensure that the data is clean, accurate, and reliable.  An insurer is ready to address the two great needs of the MLR once it protects the integrity of data flow, reduces testing volumes and cycles, and has complete confidence in the data.

Dual Needs

Under the MLR formulas, companies must focus on two essential elements: sustainable quality improvement investments and a real time focus on reducing administrative costs.

Quality improvement can mean a lot of things. The most palatable investments in this area tend to revolve around increasing patient safety, preventing hospital readmissions, reducing medical errors, lowering infection and mortality rates, and promoting healthy activities.

While there are obvious human elements to each quality improvement, technology has shown its ability to improve these areas, particularly in the area of cleaner interactions among the parties involved in health care and insurance delivery. Technology is providing the following solutions:

• Improving payer and provider interaction — Claim errors, coding violations, and discrepancies are revealed up front through real time claim analytics. Bad data is spotted instantly and interaction with providers is kept simple and clean.

• Monitoring and tracking of member and payer interaction — These interactions are seen and accessed easily. Access to claim history and records is provided in compliance with guidelines. There is also monitoring of health guideline and educational information,

• Managing payer and regulatory interaction — This is the most important relationship in the MLR sphere. Insurers must deliver quality reports that measure care effectiveness in a timely manner.

The other half of the MLR formula is reducing administrative costs. This is where technology has shown its greatest potential for insurers under ACA. This is also where automation can have a game-changing effect on the bottom line and the delivery of services. Typical administrative costs can be reduced by improving member enrollment processes and reconciliations, managing the timeliness in plan communications, and increasing claim handling and visibility on premium and claim ledgers.

Technology has played a significant role in controlling administrative costs, particularly through automation of manual tasks. The following are some examples:

• Administrative optimization — By analyzing each of your company’s processes, technology can streamline and simply each process, saving hours, complications, and plenty of dollars in the process.

• Financial metrics management — Technology can play an obvious role in claims and premium management, including real time visibility of premium risks.

• Enhanced marketing.

Expansion of MLR in California?

Insurance companies will be facing the MLR issue at the national and state levels in the coming years. In early April, a California state assembly committee approved a bill to expand the MLR to dental insurance. The measure needs to pass at least one other committee before receiving a vote by the full assembly. But this discussion illustrates the popularity of having transparency and devoting a certain percentage of premium dollars directly into health care. While passage of the California initiative is far from a slam-dunk, payers must be ready for the demand for more efficient processes as well as higher quality and more reliable data.

Using technology to streamline processes just makes good business sense, particularly with data from so many sources. Safeguarding that data and implementing end-to-end automated controls will allow insurers to analyze clean information to comply with the ACA and the MLR provisions. With strict attention to data, fewer rebate dollars will leave insurance companies, and the bottom lines will grow, despite the uncertainty and chaos ­associated with healthcare reform.


Emily Washington is director of Business Operations for Infogix. Washington, who joined Infogix in 2003, leads the product management team. She is responsible for taking Infogix products to market and creating product and solution roadmaps — most recently with focus on healthcare solutions addressing key ACA requirements. Before coming to Infogix, she held customer support roles for Cyborg Systems and in Silicon Valley. She has a Bachelor of Arts in English from San Jose State Univ.