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The Spectacle Blog
One of the biggest examples of government overreach under ObamaCare is one of the least talked about. Among many other intrusions into the market, the new national health care law imposes something called “medical loss ratio” requirements on insurance companies, which is a fancy way of saying that the government dictates to insurers the percentage of the premiums they collect that must be spent on medical care. Liberals argue that short of a fully government-run system, it’s the only way to pressure insurers into allocating enough of their revenue toward providing medical care, rather than on marketing expenses and high executive salaries. Today, the Obama administration has come out with the actual regulations stemming from the law: 85 percent for large employers, and 80 percent for other policies.
Among the many problems with medical loss ratio requirements, is that the way they’re designed makes it difficult for insurers to offer certain types of policies (especially plans which offer fewer benefits in exchange for cheaper monthly premiums). These requirements were at the root of the controversy that arose in September over McDonald’s having to drop 30,000 workers from its health plans. Eventually, they were granted a waiver from the requirements. But a lot of businesses won’t receive a waiver, meaning that insurers will have to stop offering some policies, and many of them will decide to exit the individual market entirely, due to the nature of the way the financing works. This will translate into less choice and competition, and is another way that the law will lead to people losing coverage they may like.
Also, it’s no accident that the requirements were set at 85 percent and 80 percent. Last December, the Congressional Budget Office issued a memo saying that if the requirements were set any higher than that, health insurers would have to be considered part of the federal budget — driving up the cost estimate of ObamaCare. As the CBO put it, referencing proposals for even more stringent requirements, “this further expansion of the federal government’s role in the health insurance market would make such insurance an essentially governmental program, so that all payments related to health insurance policies should be recorded as cash flows in the federal budget.” At the time, the Cato Institute’s Michael Cannon pointed to the memo as a “smoking gun,” revealing that Democrats had deliberately hidden the true cost of ObamaCare by making sure the CBO wouldn’t factor in the cost of the private sector mandates imposed by the legislation.
Kaiser Health News has a roundup of stories on the new regulations. The journal Health Affairs put together a helpful issue brief on the topic.
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More Blog Posts by Philip Klein
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Big Java| 11.22.10 @ 12:39PM
Ah, the ole song and dance and "Hey, look over there" routine.
Greg Scandlen| 11.22.10 @ 12:40PM
The MLR will completely kill any innovation in health care financing. If an insurer would like to roll out a new product or enter a new market, there will be substantial marketing and start up costs before it gets a foothold. Plus, it will be collecting premiums well before it has to pay out any claims. That is inherent to insurance.
The MLR requirement is a gift to well-established companies that have no interest in innovation.
Oldefarte| 11.22.10 @ 3:33PM
Obamacare is nothing but pure WELFARE, since it's primary purpose was WEALTH REDISTRIBUTION [by providing insurance to the thirty million uninsureds who previously either were too indigent to afford same or who were too stupid to allocate part of their middle class incomes away from their too expensive residences, automobiles, etc]. It should be defunded between now and the 2012 election, and therafter, defeated/eliminated!!!!
Allan| 11.22.10 @ 6:46PM
So, if my profit today is $1million on a 60% MLR, I will need to raise premiums 100% to make the same $1 million at 80% MLR.
How does that lower premuims?
ChamWOW d'Elysses| 11.22.10 @ 8:17PM
Wow! I thought the law was that they have to pay out 80-85% of the revenues from their entire portfolio. If they have to pay out 80-85% of EACH ACCOUNT, that's a way to lose money: Many accounts - with only one or 2 very sick people - will have them paying 120% or more, which will wipe out profit over their complete portfolio. Only Medicare can pay out 96% of revenues and survive (temporarily)!
PhilTheCapitalistPig| 11.23.10 @ 9:38AM
Dittos Phil. Glad someone is digging in on this subject finally. Someone has to explain what is going on with this healthcare bill in technical terms. That way when the employee benefits system collapses if the healthcare bill is not repealed, people can't say they didn't know. BTW, at my company, we are on track to have a 140% loss ratio. Do you think our rates are going up??? (on top of how much they would go up with just the healthcare De-form bill)
PhilTheCapitalistPig| 11.23.10 @ 9:43AM
@Chamwow --- The way it works, is if a insurance company does not pay out 80-85% in claims on a group then they are required to return the unused premium to the group.
The problem is, insurance companies aren't going to lose money on many groups anymore. They will charge extra to ensure that they do not lose money on a group, even if it means running the risk of having to return the premium. Worst case scenario by over charging is they break even after returning premium. Hell of a lot better scenario than losing half a million on a 300-life group.
This is what happens when people who have no F***** idea how insurance works start writing and enforcing legislation that is based on touchy feely emotions.
WinnieR| 11.23.10 @ 11:26AM
This Healthcare Bill was structured to deliberatly fail. Even Pelosi said the bill would lead us to universal healthcare.
Dale Cord| 11.23.10 @ 10:26AM
Its one thing to allow the mafia to seat one of their own in the oval office, but then again another to pay attention to their batten disrespect for the law of our land "The American Constitution". By following and obeying their criminal dictations is nothing short of cowardliness in the face of the enemy. You do not allow any government or organized crime to reduce you to their slaves mentally or physically! WAKE UP you cowardly morons. Don't you know just by shear numbers you are invincible if we all unite as one? How on Gods green earth, do you think we won our Independence from the evil monarch of England and WWI AND WWII? We fought together to take what is rightfully ours "freedom" from the oppressors who would Rape and kill you and your children. A great statesmen said it many centuries ago, and it should ring loud and clear in every true American's ears; " IF YOU SACRIFICE YOUR LIBERTIES SET FORTH HERE IN THESE DOCUMENTS TO PROTECT YOU AND THE GENERATION TO COME, FOR SECURITY, " THEN YOU DESERVE TO LOSE THEM FOREVER.
W.P.Koch| 11.24.10 @ 11:06AM
WHAT SHOULD HAPPEN
Congress and the White House should stop squandering the people’s money and use savings to improve quality of basic invested entitlements. Preserve the 2010 tax schedule. Congress should improve basic Medicare. Vote opponents to this “out”. Citizens come first.
It is time the U.S. reduces its human rites and police activities for the World by lobbying the United Nations, NATO and Interpol to “take on more”. 800 bases in 63 countries across the world should be reduced. Starting with Iraq, continue training for self reliance. After a surge in Afghanistan repeat above and remove corruption starting with monitoring accounts, substituting minerals mining and food crops for drugs.
If we train make them pay. Decrease forces in selected areas such as Germany, Bosnia and Okinawa.
Cut bloated federal bureaucracy. Combine CDC, EPA and FDA. Combine the FAA, NHTSA and Transportation Department. Combine GAO and CBO. Phase in outsourcing. Departments should eliminate “must spend all”. Return “unused” yearly budget to the treasury. Cut consolidated department budgets (other than entitlements) on an average of 10%.
Eliminate all 32 CZARS Mr. president. Reduce your 469 member staff which makes nearly 39 million per year! Halt first lady $180,000 air force one vacation trips. Cancel $ 20,000,000 executive order (HB 1388) to relocate key Hamas members to U.S. Stop “$200 million per day” presidential foreign trips.
Contribute to only one of: The World Bank or International Monetary Fund or U.S. Agency for International Development.
Reduce foreign aid bribery. For example, no aid to oil rich -Iraq. $37 billion and increasing with $8.7 billion of Iraq development funds not accounted for. Halt $150 million aid to Palestinians.
Charge bailed companies (TARP) for their huge executive bonuses at taxpayer expense. Government should sell its shares to recoup for taxpayer. About $154 billion owed.
Congress should reduce the “stimulus” and monetary expenditures by halting: over budget earmarks and, non relevant earmarks for vote bribery. Do not pay student loans for congressional staff. Please- no private or military jets for congress including Pelosi’s family of $2.1 million for over 2 years. Congress should set commercial travel cost standards and controls.
Reduce medical cost by: allowing purchasing anywhere in U.S., “tort reform”, and reducing “red tape”. Trace funds to local medical groups for expediting billing cost speed, doctor/patient verification and fraud reduction.
Federal government should enforce existing immigration laws. Complete the improved fence. Entitlements or benefits should be for only citizens. Deport criminal “illegals”. Only workers on a Visa Program qualify for needed medical benefits.
Improve medical expense tax deduction for citizens reaching age 65. Provide corporations tax reduction incentives for hiring with healthcare.
The savings will improve funding for:” Medicare”, “Medicaid, and “Veteran’s Affairs”.
Healthcare quality should be at least that for Congress or the Federal Employee Health Benefits Program (FEHBP). Additional benefits are: dental coverage, improved visual coverage, no drug “donut hole”, no deductibles and co-pays except for extended skilled level nursing.
These actions will allow aid for unemployment compensation and Social Security with reinstated cost of living increases.