IS THE MEDICAL LOSS RATIO A GOOD TARGET MEASURE FOR REGULATION IN THE INDIVIDUAL MARKET FOR HEALTH INSURANCE?
Article first published online: 4 OCT 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Volume 24, Issue 1, pages 55–74, January 2015
How to Cite
2015), IS THE MEDICAL LOSS RATIO A GOOD TARGET MEASURE FOR REGULATION IN THE INDIVIDUAL MARKET FOR HEALTH INSURANCE?, Health Econ., 24, 55–74, doi: 10.1002/hec.3002, , and (
- Issue published online: 8 DEC 2014
- Article first published online: 4 OCT 2013
- Manuscript Accepted: 3 SEP 2013
- Manuscript Revised: 5 AUG 2013
- Manuscript Received: 28 APR 2012
- medical loss ratio;
- health insurance;
- individual market
Effective January 1, 2011, individual market health insurers must meet a minimum medical loss ratio (MLR) of 80%. This law aims to encourage ‘productive’ forms of competition by increasing the proportion of premium dollars spent on clinical benefits. To date, very little is known about the performance of firms in the individual health insurance market, including how MLRs are related to insurer and market characteristics. The MLR comprises one component of the price–cost margin, a traditional gauge of market power; the other component is percent of premiums spent on administrative expenses. We use data from the National Association of Insurance Commissioners (2001–2009) to evaluate whether the MLR is a good target measure for regulation by comparing the two components of the price–cost margin between markets that are more competitive versus those that are not, accounting for firm and market characteristics. We find that insurers with monopoly power have lower MLRs. Moreover, we find no evidence suggesting that insurers' administrative expenses are lower in more concentrated insurance markets. Thus, our results are largely consistent with the interpretation that the MLR could serve as a target measure of market power in regulating the individual market for health insurance but with notable limited ability to capture product and firm heterogeneity. Copyright © 2013 John Wiley & Sons, Ltd.