Running Head: CALIFORNIA
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5-2 Journal: Insurance Companies and Rate Increases
HRM 630
SNHU
CALIFORNIA 2
In California state there exist a large number of insurance companies that adopt the rate
by taking into account the predetermined recommended threshold. However, there also exist
other insurance companies that increase their rates than the threshold that has been
recommended for them. Insurance companies are expected to generally spend 80 % of the
healthcare premiums on care as well as quality improvement aspects. In case of large group
insurance plans, the amount is typically 85 %. For example, in the case of the Blue Shield of
CA Life and Health Ins Co, its Medical Loss Ratio (MLR) for the year 2020 was 85.6 % against
the MLR standard of 80 % in the individual market and 91.2 % against the MLR standard of 85
% in the large group market. The information implies that the insurance company was using the
balance percentage (14.4 % and 8.8 %) of each premium dollar for making payment of
overhead expenses relating to marketing, profits, administrative costs and salaries (Medical
loss ratio (MLR) - healthcare.gov glossary. HealthCare.gov, 2021).
Similarly, another well-known insurance company in California names Anthem BC
Life and Health Co. also had a Medical Loss Ratio of 82.5 % against the MLR standard of 80 %
in the individual market and 86.0 % against the MLR standard of 85 % in the large group
market year 2020. Thus, there are several companies that increase the rate over the
recommended threshold in California (Medical loss ratio (MLR) - healthcare.gov glossary.
HealthCare.gov, 2021).
According to the Affordable Care Act, it is necessary for health insurers to spend a
specific section of the premium that is paid by the customers on healthcare areas and activities
to enhance healthcare quality. The threshold that has been set plays an instrumental role to
guide insurance companies in the amount that they need to spend on the quality improvement
sects. In spite of the fact that a recommended threshold has been introduced in place to guide
insurance businesses to spend money some insurance firms increase their rate over the
recommended limit. It has a direct implication on the customers of the insurance instruments
CALIFORNIA 3
because it impacts the quality of services that they are able to receive as well as the amount that
they have to incur. The rates vary considerably from one market to another. For instance, the
threshold set for the individual market is lower than the threshold that has been set for the large
group market and the increase in rate by insurance companies also varies accordingly.
References
Medical loss ratio (MLR) - healthcare.gov glossary. HealthCare.gov. (2021). Retrieved
February 3, 2022, from https://www.healthcare.gov/glossary/medical-loss-ratio-mlr/
