Obamacare

ObamaCare's Medical Loss Ratios Likely to Result in Consumer Losses

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What percentage of premium revenue should health insurance companies spend on clinical services? Thanks to the new health care law, that's for the federal government to decide.

That means setting rules to determine what, exactly, constitutes a "clinical service." Today, the National Association of Insurance Commissioners voted on its recommended medical loss ratio (MLR) regulation. The PPACA calls for insurers to spend either 80 or 85 of their premium revenue on clinical expenses. If insurers fail to meet the requirement, they're required to send rebates to customers. The regulation, which must still be certified by the Department of Health and Human Services before being enforceable, provides rules for how to make the calculation.

All regulation, all the time.

Today's recommendation will likely make it more difficult to insurers to police fraud, which could have the effect of making premiums cost more. Ultimately it may cause some plans to go out of business. Insurers had pushed for activities like fraud prevention would be counted towards clinical services. And they had hoped to be able to calculate the ratio as an average across plans, allowing for more variance within their products. They lost on both counts (as well as a few others).

Don't be so sure. What can we expect if HHS approves the regulation without change? For starters, less choice and less competition amongst health insurers. According to insurance consultant Robert Laszewski, we'll see market consolidation as smaller insurers struggle and drop out. Laszewski tells KHN's Julie Appleby:

"It will only lead to more market concentration….I don't think consumers will see many rebates out of this because the market will reshuffle itself in the next year and we'll only have left the biggest players to have the ability to comply."

That tracks with what the Congressional Budget Office has said about how the policy will affect the market. In December, the congressional scorekeeper outlined the potential responses insurers would have when faced with a high MLRs. According to the CBO, the various available responses for insurers who struggled to meet those requirements "would reduce the types, range of prices, and number of private-sector sellers of health insurance."

Yet liberal health policy advocates seem pleased with today's vote. On the apparent theory that what's bad for insurers is good for everyone else, one frequent PPACA booster told KHN's Appleby that it's a "good day for consumers." But if they end up faced with more expensive plans and fewer choices, I doubt most consumers will agree.

More on medical loss ratios here, here, and here.

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  1. Speaking of regulation:

    U.S. urged to regulate ‘backyard tigers’

    Tigers? In the back yard? DUN DUN DUNNNNNNNN

    1. I’m currently constructing a squirreladuct to route squirrel traffic around my enormous Aquabuddha shrine.

      1. In my backyard.

  2. HHS Giving States Millions to ‘Help Consumers File Complaints’ Against Their Health Plans:

    President Obama’s Health and Human Services Department on Tuesday announced nearly $30 million in grants to “help consumers see the benefits” of the Democrats’ new health care law.

    Those “benefits” include helping consumers file appeals and grievances against their existing health insurance plans.

    HHS says the $30 million will go to state consumer assistance programs that help Americans who have questions or concerns about their health insurance.

    http://cnsnews.com/news/articl…..payer-doll

  3. Insurers had pushed for activities like fraud prevention would be counted towards clinical services.

    I would think that’s only fair, considering that Medicare counts the 15% of its spending that is actual fraud towards clinical services.

  4. I tried to read The Regulators. It sucked.

  5. Americans: “So, the economy is pretty bad and there’s high employment. You think you can do something about that?”

    Democrats and Obama: “We can spend a trillion dollars we don’t have on pork and stuff.”

    Americans: “No . . . that’s not what we want. We’d really like you not to do that.”

    Democrats: “You’re stupid. We’re doing it anyway.”

    Americans: “That’s not going to help us get jobs!”

    Democrats: “Sure it will; millions of them ? though they may be invisible. You’ll have to trust us they exist. And guess what else we’ll do: We’ll create a giant new government program to take over health care.”

    Americans: “That has nothing to do with jobs!”

    Democrats: “We don’t care about that anymore. We really want a giant new health care program. We’re sure you’ll love it.”

    Americans: “Don’t pass that bill. You hear me? Absolutely do not pass that bill.”

    Democrats: “Believe me; you’ll love it. It has ? well, I don’t know what exactly is in the bill, but we’re sure it’s great.”

    Americans: “Listen to me: DO. NOT. PASS. THAT. BILL.”

    Democrats: “You’re not the boss of me! We’re doing it anyway!”

    Americans: “Look what you did! Now the economy is way worse, we’re even deeper in debt, and we have a bunch of new laws we don’t want!”

    Democrats: “You’re racist.”

    Americans: “Wha ? How is that racist?”

    Democrats: “Now you’re getting violent! Stop being violent and racist, you ignorant hillbillies! And remember to vote Democrat in November.”

    http://pajamasmedia.com/blog/r…..epage=true

  6. What about the fact that it incentivizes (or removes disincentives for) doctors to perform defensive medicine?

    If tacking on an additional MRI or CAT scan *inreases* the bills to the point that they reach 85% of the premium revenue, then the insurance company will be less likely to balk.

    And the insurance company would much rather grow it’s revenue than shrink it’s staff.

    So the net result is an incentive for insurers to let doctors charge excessively and add additional procedures.

    The only counter for this would be increased competition amoung insurance plans.

    But the new regulations restrict the permitted plans.

    Also, the subsidies incentivize consumers to buy more expensive plan in order to get a bigger subsidy.
    If the state subsidizes your insurance by 60%, then buying $100 extra of insurance only costs you $40. So your financial incentive is to use up as much subsidy money as possible.

    1. Yes, it was the same way with the airline industry before deregulation – they would try to increase costs as much as possible to be able to keep 5% of it or so.

      Of course, at a certain point it would be cheaper just to pay the increased taxes and never consume any healthcare.

    2. The subsidies are a flat amount (calculated by geographic area, income, and a few other factors), not a percentage. They don’t increase when you buy a more expensive plan.

    1. Sorry, just had to get that out of my system.

  7. So, does anything stop them from charging fees in addition to premiums that would not be covered under the MLR rule?

  8. Aren’t these insurance company officers well-educated? It seems they need to be re-trained, not just it’s insurer, especially with the healthcare policies. Didn’t Obama require everyone to purchase health insurance? Just don’t forget to red thoroughly its policies, especially those small clauses.

    We help Americans move to Asia for jobs and prosperity. Learn more at http://www.pathtoasia.com

  9. Aren’t these insurance company officers well-educated? It seems they need to be re-trained, not just it’s insurer, especially with the healthcare policies. Didn’t Obama require everyone to purchase health insurance? Just don’t forget to red thoroughly its policies, especially those small clauses.

    We help Americans move to Asia for jobs and prosperity. Learn more at http://www.pathtoasia.com

  10. Aren’t these insurance company officers well-educated? It seems they need to be re-trained, not just it’s insurer, especially with the healthcare policies. Didn’t Obama require everyone to purchase health insurance? Just don’t forget to red thoroughly its policies, especially those small clauses.

    We help Americans move to Asia for jobs and prosperity. Learn more at http://www.pathtoasia.com

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