One of the most controversial new rules in the PPACA is the medical loss ratio requirement, which forces insurers to spend either 80 or 85 percent of their premium revenue on health services. The idea is to help safegaurd against insurance industry waste—too much money spent on overhead, marketing, advertising, or profits. But the rule may, in fact, encourage waste and fraud, as it now appears that insurers will not be allowed to count fraud-prevention activities as health services:
At issue is the law's medical loss ratio provision, which mandates that health plans spend a minimum portion of premiums on medical care or on activities that improve the quality of care. State insurance commissioners tasked with writing the definitions are considering draft rules that would treat fraud as administrative rather than healthcare expenses; they're expected to adopt the regulations later this month.
"There is undoubtedly a direct connection between health care fraud and health care quality," National Health Care Anti-Fraud Association Executive Director Louis Saccoccio wrote Monday on the Kaiser Health News Web site.
After praising the Obama administration and Congress for making healthcare fraud prevention a "national priority," Saccoccio argues that "this commitment is being undermined by the National Association of Insurance Commissioners' recent draft regulation on medical loss ratios, which treats private plans' spending on fraud detection and prevention as nonessential to quality health care."
Supporters of the MLR provision frequently tout it as a way to keep health care prices down by discouraging administrative waste and excess profit. But because the requirement is based on a percentage, insurers will actually have an incentive to drive overall spending up. And a rule that discourages insurers from spending on fraud prevention is only likely to make overall costs swell further.