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.
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.