The Centers for Medicare and Medicaid Services (CMS) has drafted a proposed rule specifying the Medical Loss Ratio, or MLR, for Medicare Advantage (MA) plans and Part D prescription drug plans. The MLR is a policy enacted under the Affordable Care Act that specifies what percentage of plan revenue must be used for patient care, and what percent can be used for administrative costs. The MLR for private plans went into effect in 2011 and resulted in $1.1 billion in rebates to customers last year.
The Medicare Advantage and Part D Prescription Drug MLR, according to the rule being published in the Federal Register on Friday, will be set at 85%-15%. This means that 85% of revenue must be spent on patient care, and no more than 15% can be spent on administrative costs. According to MedPage Today, the rule defines patient care costs to include clinical services, prescription drugs, quality improvements, and other direct patient benefits. The remaining 15% of revenue could be used to pay overhead expenses and generate profit.
This new MLR is the same the same as the ratio imposed on private insurance companies, who have to comply with an 85%-15% or 80%-20% ratio based on size. The Medicare Advantage and Part D prescription plans, which are handled through private plan managers and intermediaries as opposed to CMS, would face penalties for not adhering to the ratio. In addition to reimbursing funds to CMS, plans that do not comply with the ratio for three consecutive years would be prohibited from enrolling new members, and after five consecutive years the plans would see their contracts with CMS terminated.
Comments on the rule are due in mid-April, and must be received before the rule can be finalized. If everything goes according to schedule, The Hill reports that the rule is set to take effect in January 2014.