Insurers that own providers can use internal transactions to inflate medical spending figures and reduce their rebate obligations under the ACA’s medical loss ratio rules, according to an analysis published Sept. 29 in Health Affairs.
The analysis was published by researchers with Bailit Health, a Massachusetts-based health policy consulting firm that works with state agencies and other public-sector clients to design and implement healthcare payment and delivery reforms.
Six notes:
1. Spending data from five states with healthcare cost growth targets (Connecticut, Delaware, Massachusetts, Oregon and Rhode Island) showed that non-claims payments rose by an average of 40.4% in 2023. These payments include financial transfers between insurers and providers not tied to individual claims, such as capitation or care coordination fees. Much of the increase was driven by Medicare Advantage plans, particularly through arrangements between insurers and affiliated provider groups.
2. Alternative payment models, such as lump-sum or per-member payments, can improve care coordination. But when an insurer owns providers, the payments can be used to shift profits internally. The analysis noted that vertically integrated companies can raise internal payment rates without delivering additional care, allowing them to report higher medical spending and meet federal MLR thresholds while retaining profit within their parent organization.
3. The ACA requires insurers to spend at least 80% of premiums on medical care and quality improvement in the individual and small-group markets, and 85% in the large-group and Medicare Advantage markets. Those falling short must issue rebates back to members However, payments from an insurer to an affiliated provider count fully toward medical spending, even when the money stays inside the same company. This structural loophole enables integrated organizations to inflate MLRs and minimize rebate payments, according to the analysis.
4. In 2023, Kaiser Permanente, UnitedHealthcare, and Elevance Health held 39% of the large-group commercial market, while the top five Medicare Advantage plans (UnitedHealthcare, Humana, Aetna, Elevance, and Centene) had 68% of national enrollment. All are part of or are parent companies that also own or manage large provider networks.
5. A 2022 Brookings analysis found that internal transfers between affiliated insurers and providers in Medicare Advantage can represent 20% to 71% of total plan spending. For example, Connecticut reported UnitedHealthcare paying its OptumCare Network a fixed percentage of Medicare Advantage premiums, while Oregon saw large shifts from claims to non-claims spending tied to UnitedHealthcare’s Optum affiliates. Across UnitedHealth Group’s consolidated businesses, intercompany revenues (classified as “eliminations” in financial reports) more than doubled from $58.5 billion to $136.4 billion over five years.
6. The authors recommend policy changes that require insurers to disclose internal payment arrangements and pricing methods to state regulators to ensure reported medical spending reflects actual care costs.
