What Consumers Will Lose Thanks to ObamaCare's Medical Loss Ratio Rule


Part of President Obama's case for last year's health care overhaul was that it would reduce the price of insurance premiums, saving families an average of about $2,500 a year. But since he signed the law, health insurance prices have risen even faster than in the few years before it passed. And one of the law's crucial insurance industry regulations—the MLR (medical loss ratio) rule, which mandates that insurers spend at least 80 or 85 percent of their premium revenues on clinical services, as defined by the federal government—may actually make it harder for individuals to find health insurance plans that help hold down premiums through higher deductibles. Via Bloomberg's legal news provider, BNA:

The rule will particularly hurt low-cost, high-deductible plans, she said. The MLR only counts payments made directly by insurers as medical expenses, she said. When individuals pay for services to meet the high deductibles, the expenditures do not count toward the MLR, she said.

"One of the perverse effects of the MLR rules likely will be higher health care costs" because the requirement is eliminating competition, and because costs for preventing fraud must be counted as administrative costs, she said.

The typical response from defenders of the MLR rule (and critics of high-deductible health insurance) is that those plans are of dubious value to begin with, because they create incentives for consumers, who end up paying for more of their regular medical treatment, to skimp on medically necessary care. What's funny, though, is that the same people who defend ObamaCare's insurance regulations—folks like outgoing Medicare chief Don Berwick, for example—tend to be the same people who think that something like a third of all medical care is wasteful. They're happy enough to empower small panels of federal bureaucrats to determine which care is valuable and which isn't, but less interested in letting patients and doctors make such decisions for themselves.

The other problem with complaints about high-deductible plans is that there's some evidence to suggest that in fact individuals enrolled in high deductible plans not only don't have worse noticeably health outcomes, they actually use more preventive care than those enrolled in traditional health insurance plans.

You can't say the same for the 34 states that experimented with MLR rules prior to ObamaCare. In July 2009, an American Academy of Actuaries report found that, "minimum loss ratios do not help contain health care spending growth…or address directly the quality and efficiency of health care services."

The MLR rule is frequently pitched as a way to help ensure that insurance plan enrollees get better value for their money, but it could well end up being a barrier to plans actually proven to do so.

Read more on MLRs here and here