Health Insurance As Public Utility


Is a provision in the Affordable Care Act that regulates health insurer profit margins a backdoor attempt to turn health insurance into a public utility?

The PPACA's rules governing medical loss ratios—which determine what percentage of an insurance company's operating budget can be devoted to administrative costs and profit—were set at the maximum threshold at which the Congressional Budget Office would decline to include the cost of private insurance premiums in its cost estimates; crossing that threshold would have made the bill far more expensive. Currently, the ratios are set at 80 percent for the small group market and 85 percent for the large group market, meaning that insurers must make certain that either 80 or 85 percent of their budgets are spent on "clinical services." Those ratios are as high as they can be while still leaving insurers some semblance of independence; if nationwide MLRs were set even a single point higher, according to the CBO, health insurance would constitute "an essentially governmental program."

In other words, in the CBO's view, the new health care law walked right up to the government-takeover line, but didn't technically cross it.

Now, however, a handful of Democratic committee chairmen, led by Sen. Max Baucus, are pushing the department of Health and Human Services to interpret the MLR provision in a way that makes it even more onerous than what the bill's language actually calls for.

As the American Action Forum's Douglas Holtz-Eakin and Michael Ramlet explain in a piece for Kaiser Health News, "the new law says unambiguously that the MLR is supposed to be calculated 'excluding Federal and State taxes and licensing or regulatory fees.'"

But just because the law's language is unambiguous doesn't mean that legislators won't try to clarify it. Baucus and the other committee chairmen have written to HHS director Kathleen Sebelius to say that "federal taxes and fees in this context is meant to refer only to federal taxes and fees that relate specifically to revenue derived from the provision of health insurance coverage that were included in the [health reform legislation]." What they don't mention is that including those federal taxes will make it substantially more difficult to satisfy the requirement.

Of course, that seems to be exactly the idea; as a piece in Politico noted this morning, in the ongoing arguments over how regulators should define and enforce the MLR rules, "top House and Senate chairmen want to include as many items as possible on the administrative side of the ledger, which would make the quota harder [for insurance companies] to reach." Not content with having written a law that the CBO views as all but a takeover of the insurance industry, Baucus and his colleagues are now attempting to expand the authority of insurance regulators even further. With the PPACA, Congress walked right up to the government-takeover line; will medical loss ratio regulations let Max Baucus and his fellow Democratic chairmen stick a toe over it?

Read Ronald Bailey's take on health insurance as a public utility here.