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Archive for December 22nd, 2009

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There seems to be a consensus that the Senate bill in it’s current form would most likely be what could end up being signed by the POTUS.  The theory is that if the merging of the House and Senate bills doesn’t closely resemble the Senate bill, there is no way the merged bill could get 60 votes in the Senate (and thus be killed altogether).  That said, I’m starting to think about what impact this particular bill will have on health insurance as we know it. 

Recently, there has been a trend toward “Consumer Directed” health insurance.  Essentially, putting more control in the hands of the consumer via High Deductible plans and/or plans with higher co-insurance and/or co-pays.

Enter the Mandated Medical Loss Ratio (MLR).  This feature of the Senate bill says that the insurance company must spend 80% of premium dollars on care (85% for large groups). 

Given the fact that high deductible plans tend to have lower MRL’s and are much more expensive to administer, I don’t see a bright future for High Deductibles, co-pays and co-insurance.

Ironically, those who understand insurance realize that deductibles, co-insurance and co-pays play an important role in reducing overall healthcare costs.  Essentially, first dollar coverage give the insured no financial incentive to ration their own care.  Care becomes essentially “costless” from the insured’s perspective and we tend to consume more of things as they get cheaper.  Medical care is no different.

Obviously, from the insurance company’s perspective, the more dollars they pay out for care, the more dollars become available in the 20% piece for administration and profit.  At that point, they just need to price the product for richer benefits since they have zero incentive to control claims cost (if they achieve a MLR under 80%, they are required to refund this to the insured anyway, so why bother?)

Might the mandate for minimum MLR’s actually INCREASE the rate of increase in Health Insurance Premiums?  CBO is projecting that this provision will have the affect of lowering premiums while I believe a strong case could be made for just the opposite.  Could the MRL mandate bend the cost curve UP??

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This story is from the National Underwriter.  Previous versions had HHS regulating the amount which agents could be compensated inside the Insurance Exchange.

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