ObamaCare's Health Insurance Rebates May Make Insurance More Expensive

The Department of Health and Human Services has taken to touting ObamaCare's alleged consumer benefits, and in particular the rebates insurers are now required to send customers thanks to the law's medical loss ratio (MLR) rule, also known as the 80/20 rule.

That provision requires health insurers to spend at least 80* percent of collected premium dollars on medical care. If not, they have to rebate the difference to the customer. This year, insurers rebated slightly over $1 billion, or about $151 per person on average. “Thanks to the law," HHS Secretary Kathleen Sebelius said in a press release discussing the provision, "our health care system is more transparent and more competitive, and that’s saving Americans real money.” 

Journalists covering the provision have often made similar points. ABC News reported this summer that the rule is "aimed at holding health insurance companies accountable for how they spend the money collected through premiums." On the same day the ABC News piece ran, CBS let the world know that the health law "requires insurers to spend premiums on patients — or pay rebates." USA Today published a news report that boreder on advertorial under the headline "Health insurance rebates may keep premiums down for everyone." 

Or they may not. Not one of these articles noted that the provision is actually likely to make health insurance premiums more expensive. For that, you'll have to turn to the folks at NPR's Planet Money. Reporter David Kestenbaum called six health economists. "No one thought the provision would do much good,"reports Kestenbaum, "and several thought it could be harmful." That list includes one of ObamaCare architects and supporters, Jonathan Gruber. 

Why are economists so sour on the provision? The worry is that rather than look for ways to control costs, insurers will simply let spending balloon, leading to higher premiums — and bigger profits. It's easier to cover someone's health costs on 80 percent of $1,000 than it is on 80 percent of $100. And because insurer profits and other administrative costs must come from the remaining 20 percent, there's a larger pool from which to draw profits and business expenses. 

But as the administration surely knows, a check in the mail is easier to see than cost restraint, and lower premiums, in the absence of those rebates. Indeed, the administration has worked to ensure that customers know exactly where those rebate checks are coming from. Health insurers sending out rebates this year were required to include a letter stating in the first paragraph that the rebates are required by ObamaCare.  

I'm glad to see that Planet Money is giving this provision some of the scrutiny it deserves, though I wish more attention would have been paid to it before now. For that, you would have had to look here, herehere, here, here, here, and here

*Changed to say 80 percent, not 20 percent. 

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  • Tim||

    SOVIET INDUSTRY BUILDINK MORE TRAKTORS!

  • Ptah-Hotep||

    That provision requires health insurers to spend at least 20 percent of collected premium dollars on medical care

    Are you sure about this? I thought they had to spend 80%.

  • NoVAHockey||

    yeah, 20% is for overhead. marketing, profits, salaries, administrative costs, etc. and currently broker fees. but that possibly could change.

  • VG Zaytsev||

    It's also a flat out admission that 'health insurance' is really pre-paid healthcare with no insurance component at all.

  • Auric Demonocles||

    They tried to claim that health insurance is just a financing mechanism when they were attempting to get the mandate through the commerce clause.

  • John||

    I really don't understand how people say Obamacare will get more popular in 2014 when it actually fully kicks in. Every single time we learn about an effect of Obamacare it turns out to be worse than even its worst critics thought. People are going to pay more for health insurance and get less that is even if they manage to keep it. This thing is a disaster. It is never going to be popular. Dems are going to be stuck defending this flaming pile of shit for a generation.

  • The Hammer||

    They say that, they don't actually believe it. What they believe is that when it kicks in in 2014 it will fuck everything up so bad that people will be clamoring for "single payer."

  • John||

    That is what the think. Of course single payer is going to be a bit hard to implement when we are broke. They missed their shot at single payer in 1993 when there was still money for it. Lets say their plan works and people are demanding single payer after it kicks in in 2014. That means the government won't even look at it until 2015 or 2016. At that point, we won't be able to borrow another buck from the Chinese or print another dollar and massive austerity will have kicked in. And they are not getting single payer under those conditions.

  • Kwanzaa Cake||

    But you must remeber that they believe single payer will reuce costs. To them, the only problem with the healthcare system is that they don't have total control. And I guess at some level it will reduce costs when the IPAB overlords rule that all kinds of procedures now readily available won't be paid for, thereby exploding the myth that single payer will grant universal "access."

  • sarcasmic||

    They believe single payer will reduce costs by eliminating wasteful profits.
    It takes a real monster to profit off of pain and suffering. That's why health insurance companies are the embodiment of evil. They must be brought down and replaced by selfless bureaucrats who care only for doing good for the hapless citizens whom they shepherd who, left to their own devices, would fall into anarchy and chaos.

  • RickC||

    ObamaCare's Health Insurance Rebates May Make Insurance More Expensive. May?

    Re: last paragraph - I wish somebody, anybody had been able to point this crap out before OCare passed into legislation. Gotta give Mrs. Pelosi props. She was right that they had to pass it before we all could learn what was in it.

  • NoVAHockey||

    the bill language was under lock and key pretty much until the vote was held.

    sort of. There's the ACA .. and then the reconciliation bill, which immediately amended the ACA. that language was released very shortly before they passed everything.

  • Rhino||

    They hadn't even read the bill. Probably didn't know there would be profit caps. This problem is so obvious. It's how budgets work in the military. if you don't use it, you lose it, so at the end of every quarter and FY, we go on a spending spree to make sure we don't have anything left over. Health Insurance Companies are now going to do the same thing making the %GDP the we spend on health care go up.

  • Spoonman.||

    Of course it will. Increase demand without increasing supply, what do you get? Price jumps. It's obvious.

  • R C Dean||

    What they're doing is a botched, half-assed attempt to turn health insurance into a utility.

    Utilities classically have to get their rates approved by the state (a missing piece), and have predetermined rates of return (what the 80/20 rule is groping for, but failing to grasp).

  • Adam330||

    insurance premiums will be approved by states and the feds under obamacare too (most states already have approvals processes)

  • The Late P Brooks||

    That provision requires health insurers to spend at least 20 percent of collected premium dollars on medical care.

    Wait, what?

  • Peter Suderman||

    Ah! Typos. Fixed.

  • pmains||

    Not so fast, Suder Man.

    "a news report that boreder on advertorial"

  • Bardas Phocas||

    Since I had once been a federali, I periodicaly check the WASHPOST's fed page. Ah the dee-licious tears in this article:
    http://www.washingtonpost.com/.....story.html
    Federal employees have to pay (a little) more for health insurance - but their pay is flatlined due to Congressional deadlock and Presidential fiat.
    Suck on it bitchez!

  • The Late P Brooks||

    But as the administration surely knows, a check in the mail is easier to see than cost restraint

    See, also: tax REFUND check.

    "Look Honey, the IRS is sending us money!"

  • ||

    Indeed. Bush did it. Obama did it.
    Course Obama is the first guy to force private entities to send people checks right before an election. Bush used actual treasury dollars to send everyone "stimulus" checks.

    Fuck. We should really just throw in the goddamn towel. We live under a government so corrupt that we have this kind of blatant vote-buying where the President arranges for everyone to get a check in the mail literally months before an election.

  • db||

    So, people are going to be surprised that a law requiring the purchase of health insurance crafted with the strong input of, and backed by, the health insurance industry will cost consumers more? I'm becoming more and more convinced that people in this country believe that if they "recognize" a problem and talk about it enough, and maybe glare at their elected officials a little, that the problem magically gets solved. What else can explain our complete lack of holding politicians accountable for their epic failures?

  • freeforall232||

    "Romney says he doesn't plan to repeal of all of Obama's signature health care plan. He says there are a number of initiatives he likes in the Affordable Care Act that he would keep in place if elected president."

    http://www.cbsnews.com/8301-50.....obamacare/

    Death to Obamacare. Long Live Obamacare!

  • Adam330||

    "The worry is that rather than look for ways to control costs, insurers will simply let spending balloon, leading to higher premiums — and bigger profits."

    This seems pretty simplistic and stupid. Wouldn't competition between insurers be expected to keep premiums down? If insurers could just raise premiums to get bigger profits, I'm absolutely certain they would have raised them to that level already.

  • ||

    People are going to be forced to buy their products. And their products are going to be pidgeonholed into stanardized "bronze", "silver" and "gold" packages. So competition will be dramatically reduced. The insurance industry has also been massively consolidating to deal with the law. By the time it goes into effect, there may only be 2-3 insurance companies to choose between.

  • ||

    The worry is that rather than look for ways to control costs, insurers will simply let spending balloon, leading to higher premiums — and bigger profits. It's easier to cover someone's health costs on 80 percent of $1,000 than it is on 80 percent of $100. And because insurer profits and other administrative costs must come from the remaining 20 percent, there's a larger pool from which to draw profits and business expenses.

    Hat tip me. I pointed this out months ago on Reason's message board.

  • ||

    Also, note that the rebate checks and the associated letter were timed to occur right before the election.

  • Auric Demonocles||

    What a crazy random happenstance.

  • Skyhawk||

    "That provision requires health insurers to spend at least 80* percent of collected premium dollars on medical care. If not, they have to rebate the difference to the customer. This year, insurers rebated slightly over $1 billion, or about $151 per person on average. “Thanks to the law," HHS Secretary Kathleen Sebelius said in a press release discussing the provision, "our health care system is more transparent and more competitive, and that’s saving Americans real money.”

    Too bad this doesn't apply to the taxes we pay.

  • Fatty Bolger||

    Kathleen Sebelius violated the Hatch Act. Why does she still have a job?

  • The Late P Brooks||

    Wouldn't competition between insurers be expected to keep premiums down?

    As R C pointed out, they want to turn health insurance/care into a utility. As we all remember from high school civics, a utility is a "natural monopoly" so competition is wasteful and inefficient.

    Bring on the Top Men!

  • julieanderson||

    As the days are passing after the elections has been completed they are changing the health policies a lot.They are been raising the cost more and such the normal people can't afford for that.It is very disguising thing!!
    http://www.medicarealabama.com/

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