Obamacare

ObamaCare vs. Health Insurance Brokers

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A story in The Hill reports that, according to a new report by the Government Accountability Office, one of ObamaCare's insurance regulations is already leading to "lower healthcare premiums." How's that? The regulation in question requires health insurers to maintina what's known as a minimum loss ratio (MLR). That means insurers must devote a minimum of either 80 or 85 percent of their premium revenue, minus taxes, to paying for health care or activities that improve health care quality, as defined by federal regulators. The remaining 15 or 20 percent is left for administrative expenses, marketing, and profits.

Obama administration health officials insist that this will help ensure that consumers get better "value" from their health insurance. But value, in this case, appears to mean that insurers are cutting back on insurance broker commissions, which don't count as health expenditures, in order to reduce premium growth. Here's GAO:

Almost all of the insurers we interviewed were reducing brokers' commissions and making adjustments to premiums in response to the PPACA MLR requirements. These insurers said that they have decreased or plan to decrease commissions to brokers in an effort to increase their MLRs. One insurer said they started making reductions to their brokers' commissions in the fourth quarter of 2010 for their individual and small group plans to increase their 2011 PPACA MLRs in these markets and, as a result, premiums were not as high as they otherwise would have been. This insurer said these reductions will take effect gradually because they are only being applied to new sales or when groups renew annually. Another insurer lowered commissions to their brokers in the individual market in the first quarter of 2011, such that premiums were increased less than they otherwise would have been, which they expect to result in an increase in their PPACA MLRs for 2011. 

So, thanks to ObamaCare, health insurers are cutting back on the commissions that go to pay the individuals whose job is to represent consumers. That, in turn, will likely make it diffcult for many brokers to keep doing business. Brokers obviously shouldn't be guaranteed work. But ObamaCare seems likely to force many of them to shut down, or significantly scale back. 

Meanwhile, the long-term pressure created by mandatory MLRs may still end up pushing premiums higher. Because insurer profits will be legally limited relative to health care expenditures, they'll have less reason to police fraud and waste in order to keep health spending down, and additional incentive bloat the health system with unnecessary care. 

Watch Reason.tv's interview with former health insurance broker Glenn Morton:

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28 responses to “ObamaCare vs. Health Insurance Brokers

  1. Lots of great arguments against ObamaCare.

    But this isn’t one of them.

    Nobody’s gonna cry for insurance agents (or even miss them if they disappear.)

    1. My father is an insurance broker who provides a valuable service to small businesses, tailoring plans to their particular company based on that company’s specific needs. It’s time they save that allows them to be more productive. He’s already feeling the pinch thanks to this legislation.

      I’d be against any specialized profession being disposed of as a result of bad legislation. I don’t see how this legislation helps the consumer in any way.

    2. Unlike you, I don’t claim to know the worth of insurance agents or any other specific occupation. I trust in the invisible hand; if free markets create such an occupation, that’s good enough for me.

      I am not naive enough to think we have actual free markets. But they are free enough to generate occupations which the government does not like, and that also is good enough for me.

  2. Let’s say you’re at the cap already for your MLR. Your only options for increasing your profits are:

    (1) Raising premiums, which automatically raises your cap.

    (2) Increasing market share. Of course, you’re trying to increase your market share already, and spending more on marketing eats up your cap, so its hard to see how that works out.

    (3) Cutting marketing (likely to cost you market share, meaning you lose).

    (4) Cutting administration, most of which is in utilization review, fraud control, etc. If you figure the bogus claims you will pay are less than the cuts to administration, this is a win for profits. But that’s a tough sell.

    So, the MLR cap turns pretty much into a direct incentive to raise premiums as the only way to increase your margin.

    Genius. Pure genius.

    1. “Genius. Pure genius.”

      If your goal is to blame the free market and corporate greed for rising insurance premiums, and use this as an excuse for government single payer, then yes I’d say it is pure genius.

      1. See, I’m having a problem with the whole “Never attribute to malice that which is adequately explained by stupidity” aspect of Obamacare.

        Part of me agrees with you Sarc, that they are maliciously undercutting the entire health insurance industry in order to force everyone in to single payer, but at the same time I’m not convinced that they are this smart.

        Part of me still thinks that they truly believe -really and for true- that this bill was going to lower healthcare costs and provide better care. And since that is possibly true I can’t get past the Hanlons razor aspect of this whole scenario.

        1. it’s true for liberals as a whole. They want a world where everyone’s healthcare is covered and they think that huge complex regulations like these will achieve it. Liberals suck at basic common-sense economics and math, which is also why very few of them run businesses or are in business.

          Liberals at this point are stuck parroting old repeated memes. Their philosophy is dying, and they don’t have much novel to say. For some reason it’s attractive to a relatively large swath of people on the coasts (maybe 10-20%), I think often because it allows some weird sense of smug superiority. We can see how it starts, in schools, which are dominated by that strain of thought, but why some people catch it so strongly is weird.

          I think part of the reason liberals support these tghings is indeed some sick deeply-ingrained belief in control. I’ve managed to show Tony is full of shit when, when I pointed out that France’s sytem is the best and is NOT single payer, and he said he never argued for single poayer only, then on some other article he’s back to promoting single-payer again. One can believe the government should have a role in helping provide healthcare to people, but there’s no limitation that that should be single-payer. There are an infinite number of systems that could be divised and many that already exist. But always they jump to single payer.

          1. I think part of the reason liberals support these tghings is indeed some sick deeply-ingrained belief in control.

            That is exactly it. They despise liberty. Things and people need to be controlled. Otherwise you can’t control the outcome.

            1. We don’t despise liberty, we just define it more usefully than you do, as in applying it to the non-rich in a more than theoretical way.

              1. Having your liberty defined for you is having your liberty denied to you.

                1. So why do you guys try so hard to define liberty as narrowly as possible for people?

              2. That makes no sense.
                Liberty is liberty, regardless of if you are rich or non-rich. It applies equally.

                1. I say people should be free from bankruptcy due to unforeseen medical expenses. You don’t. Liberty isn’t quite that simple a thing to define.

                  1. “I say people should be free from bankruptcy due to unforeseen medical expenses. You don’t.”

                    That is correct. I say people do not have the right to take goods and services without giving payment, nor do they have the right to force someone else to pay for them.

                    “Liberty isn’t quite that simple a thing to define.”

                    Actually it is. You can do what you like as long as you do not interfere with someone else’s liberty.

                    Taking goods and services without payment violates the liberty of the person providing the goods and services.

                    Forcing someone else to pay for those goods and services violates that person’s liberty.

                    1. That all sounds nice until you have to deal with the fact that there will, without question, be people who will violate your liberty. Then you have to “force someone else to pay” for things like police and national defense. Your version of liberty only works in a fantasy world you constructed in your head in order for your version of liberty to make sense.

                    2. “Then you have to “force someone else to pay” for things like police and national defense.”

                      There you go with your straw man again.
                      Most libertarians concede that courts and defense are legitimate duties of government.
                      I do not argue against having courts and national defense.
                      That is a straw man.

                      I do argue against institutionalized envy, against institutionalized plunder, against false philanthropy and forced charity.

                    3. Here’s the difference.

                      I have an individual right to defend myself. This right does not come from government, it comes from existing. I have the right to defend my existence.
                      National defense collectivizes this individual right.

                      I have a right to seek justice when my life, liberty or property is violated, or when a contract is broken. Someone steals my stuff, I take it back and punch him in the face to let him know not to do it again.
                      Courts (and police) collectivize this individual right.

                      I do NOT have an individual right to take my neighbors stuff. If I do then he has a right to seek justice.
                      So how can government do it for me if government is his collectivized instrument of justice?
                      See the conflict?

                    4. Tony|8.30.11 @ 3:06PM|#
                      “That all sounds nice until you have to deal with the fact that there will, without question, be people who will violate your liberty….”

                      Yes, shithead, there are others like you in the world.

                  2. I say people should be free from bankruptcy due to unforeseen medical expenses. You don’t. Liberty isn’t quite that simple a thing to define.

                    Freedom doesn’t mean freedom from responsibility, Tony.

          2. It’s quite a claim to say you’ve undermined the entire project of the left by catching someone defending a particular scheme. I think single-payer would work best in the US because we already have a fairly successful model for it. But I’ve never claimed to be only for one system: I’m not educated enough on the subject to be that certain. I really only care about the end result of a policy.

            The philosophy may be dying but only because it’s been killed by more powerful forces. It’s hard to argue that the liberal project is incomplete when all you have on your side is being right, but little corporate money.

            1. I’m not educated enough on the subject to be that certain.

              But that’s OK, you just know what feels right!

              The philosophy may be dying but only because it’s been killed by more powerful forces.

              Like logic, reason, and experience?

              It’s hard to argue that the liberal project is incomplete when all you have on your side is being right, but little corporate money.

              It’s failed everywhere it’s been tried for the past couple hundred years. So in that regard it is complete – in its failure.

              1. Do what? What are the best places to live on earth? Arguably, Scandanavian countries (if you prefer to go by most meaningful measures of a decent lifestyle). Those happen to be among the most socialistic of modern democracies. In fact the entire modern world is built on premises found in liberalism. What’s a proven failure is free market radicalism, but you guys are too dogmatic to ever count anything it does as a failure.

                1. “Those happen to be among the most socialistic of modern democracies.”

                  To the point of National Socialism.

                2. What’s a proven failure is free market radicalism,

                  Perhaps you could provide an example of a radical free market society that that failed.

            2. I think single-payer would work best in the US because we already have a fairly successful model for it.

              Successful in what way?

        2. I see where you’re coming from, but I’m not so sure.
          These people know that The People? will not accept a complete government takeover of health insurance and health care in one swell foop.
          But they do understand incrementalism.
          They know that if the chip away bit by bit, and cause prices to rise through regulation while blaming the free market, that The People? will demand that they do something and we’ll get single payer.

        3. Part of me agrees with you Sarc, that they are maliciously undercutting the entire health insurance industry in order to force everyone in to single payer, but at the same time I’m not convinced that they are this smart.

          Various lefty Dems pretty much said that was their goal. I’m inclined to take them at their word.

    2. That’s the government grants itself the right to second-guess premium increases. Though I guess you just have to do it slowly and consistently.

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