Maggie's Farm

ObamaCare’s regulation of medical loss ratios is crafted to come within a hair-width of the CBO considering  the health insurance industry as formally nationalized.  Actually, it is nationalized, at huge costs, hidden by the false cuts to providers, to the states' bearing mandated budget costs, and by those covered paying significantly higher premiums, all while the government dictates who and what is covered, how, and by whom.

One of the ways in which the insurance industry is nationalized is via an imposed medical loss ratio, at the expense of choice and quality of care.

In December, the Congressional Budget Office, tasked with costing the federal budget impact of  ObamaCare, said that imposing a medical loss ratio of 90% on insurance companies would,

Taken together with the significant increase in the federal government’s role in the insurance market under the PPACA, such a substantial loss in flexibility would lead CBO to conclude that the affected segments of the health insurance market should be considered part of the federal budget….CBO has determined that setting minimum MLRs under the PPACA at 80 percent or lower for the individual and small-group markets or at 85 percent or lower for the large-group market would not cause CBO to consider transactions in those markets as part of the federal budget.

The medical loss ratio is the percentage of premiums paid out for medical care benefits.

The 90% was the suggestion of Senator Rockefeller (D-WV).  So, the final version of ObamaCare imposed a 5% lower medical loss ratio on each plan offered by insurers, and the Democrats slimly avoided including the nationalization of the health insurance industry in the CBO costing of ObamaCare.

The federal budget cost of nationalization is not revealed by the CBO, which said it has estimates, but the costs to choice and benefits is more apparent. ObamaCare supporters simplistically assert that the portion of premiums not spent directly on benefits, administrative costs, is either wasteful or undue profits.  The profit margin of the health insurance industry, about 3%, is well below that of other industries.  Let’s, then, look at whether they are wasteful.

The CBO looked at medical loss ratios in its Key Issues in Analyzing Major Health Insurance Proposals in December 2008.

But a loss ratio is not always indicative of a plan’s efficiency or value. For example, a health plan that devotes more resources to managing the use of health care services might have a rel­atively low loss ratio but also a lower overall premium. In contrast, a more lightly managed plan might have a high loss ratio but a correspondingly higher overall premium and might be covering more services that provide limited health benefits.

According to that CBO report, the portion of administrative costs devoted to benefit enhancement and more effective delivery of services is about a third, for customer service, care management, creating and monitoring performance of provider networks, claims processing, regulatory compliance, and information technology.  In addition, one should add a portion of management overhead.

The American Academy of Actuaries analyzed the issue of medical loss ratios in February, concluding:

Minimum loss ratios do not help contain health care spending growth, en­sure that health care services are appropriate and accurately billed, or address directly the quality and efficiency of health care services.

ObamaCare supporters are accusing insurers of gaming ObamaCare by their reclassifying some of these costs to increase their medical loss ratio. In fact, insurers are more properly classifying expenses of better delivering and managing medical benefits.  The CBO report says that increased economies of scale, as may be seen in ObamaCare’s exchanges, may reduce administrative costs by up to 3%.  On the other hand, the increased regulatory compliance may eat up some or much of that.  Other elements of administrative costs that improve care may be reduced by insurers required to post an artificial statistic imposed by ObamaCare.

Another portion of administrative costs is probable to impact choice, lowered commissions to and increased duties by insurance agents.  The CBO reports (page 65):

In particular, plans that are sold to individuals and small groups are more likely to incur fees for insur­ance agents and brokers to handle the responsibilities that larger firms generally delegate to their human resources departments—such as finding plans and negotiating pre­miums, providing information about the selected plans, and processing enrollees.

Large groups also depend upon extensively trained, knowledgeable agents and brokers.  As someone with extensive earned credentials and experience as an independent broker, I wrote about the value of such agents and brokers, including beyond that directly related to the medical plan.

This delivers wide-ranging values to my clients and of the interactions of their health insurance with their broader business, regulatory and financial affairs.Does anyone expect the staff hired or created by the [government] to have this independence, experience or training? If so, get real!

Some assert that the increased number of formerly uninsured will offset lower commissions.  But most of those now to be covered will be in state Medicaid programs or other government programs.  And, lowered commissions, already low, and higher operating costs will not be offset by higher volume for most of the several hundred thousand independent agents and brokers. I’m near retirement, but many thousands of others will be forced out of their livelihood.

As the CBO said in December 2009, it’s a very slim margin in it considering health insurance nationalized.  At minimum, experts now consider the health insurance industry transformed into a public, government-run utility.  In reality, together with all the other intrusions and controls in ObamaCare, the health insurance industry is nationalized.  Some may be net beneficiaries due to, most prominently, taxpayer subsidies, those responsible having to pay for others who wait to obtain coverage until they are ill or injured, or increased government bureaucracy jobs. 

Everyone else suffers at the hands of ObamaCare.