NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Victoria R. Marone

Northwestern University
Evanston, IL 60208

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NBER Working Papers and Publications

April 2017Cost of Service Regulation in U.S. Health Care: Minimum Medical Loss Ratios
with Steve Cicala, Ethan M.J. Lieber: w23353
A health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully-insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives analogous to cost of service regulation. Using variation created by the rule's introduction as a natural experiment, we find claims costs rose nearly one-for-one with distance below the regulatory threshold: 7% in the individual market, and 2% in the group market. Premiums were unaffected.
 
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