The Impact of Accounting and Actuarial Practice Differences on Medical Loss Ratios: An Exploratory Study of Five HMOs

This paper explores the quantitative implications of accounting differences by examining detailed cost information on five health maintenance organizations (HMOs). Standardized cost allocations and actual medical expenses were compared to those publicly reported by HMOs in medical loss ratios (MLRs)...

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Bibliographic Details
Published in:Inquiry (Chicago) 1999-10, Vol.36 (3), p.343-352
Main Authors: Turnbull, Nancy, Kane, Nancy M.
Format: Article
Language:English
Subjects:
Accounting
Accounting methods
Accounting procedures
Actuarial cost methods
Administrative expenses
Consumer organizations
Cost accounting
Cost allocation
Cost allocation methods
Cost estimates
Datasets
Health care costs
Health care expenditures
Health care payments
Health care policy
Health insurance
Health maintenance organizations
Health Maintenance Organizations - economics
HMOs
Humans
Impact analysis
Insurance regulation
Loss ratio
Loss ratios
Medication administration
Ratios
Research Notes and Data Trends
Statistical analysis
Studies
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Summary:This paper explores the quantitative implications of accounting differences by examining detailed cost information on five health maintenance organizations (HMOs). Standardized cost allocations and actual medical expenses were compared to those publicly reported by HMOs in medical loss ratios (MLRs) and administrative expense ratios (AERs). Differences in accounting and actuarial practices were found to have a small percentage impact on the MLR and the AER, but they accounted for a large percentage of observed differences in reported MLRs and AERs. Policies that regulate MLR floors or AER ceilings encourage HMOs to adopt accounting practices producing the most favorable ratios for regulatory purposes.
ISSN:0046-9580
1945-7243