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??
Medicare supplement companies have been forced to maintain a 65% loss ratio since 1992. This mandated loss ratio had the most immediate effect on the Medicare supplement sales person’s commissions. This was not such a bad thing, and many rogues left the industry. Over time, the industry flourished again. Then along came MA’s, a great idea, but bereft with problems. $0 premiums and high commissions encouraged replacement and unsuitable sales. Many of us did not over sell this product, but are left trying to navigate the MA market conduct mandates caused by those who did.
Mandated loss ratios are not a bad thing, and I think it’s a wide leap to determine they will be met with lower deductibles and co-pays. Consider that the claims adjudication process may again rely on “usual, customary and reasonable” languages, since traditional network PPO’s, HMO’s, will not be allowed to have severe penalities for out of network care. (see latest addendums).
I think we should be most concerned with who will want to remain in the health insurance biz. Worst case: carriers will opt out, and the only option left will be for a national health plan. Call your congress people now!
Lori:
Thanks for the reply. I agree that the 65% loss ratio on Med Supp and increased regulation and standardization has been a postitive for the Med Supp business. Mandating MLR’s is probably a matter of degree. There’s a big difference between a 65% minimum MLR and an 80% MLR. I’m thinking more here about the impact of this on the Individual and Small Group markets. Also consider that the bill will do away with underwriting and that individual and small group insurers have more expense in adjusting claims and network management. Med Supp companies can underwrite, don’t adjust claims and don’t manage a provider network. Based on this, I don’t see a close comparison.
Regarding deductibles, cost sharing, etc., the administrative expense (at least on a % basis) is virtually always higher on high deductible plans.
Given the current bill, I’m not so much concerned about the short term future (say 3-6 years) of the health insurance business. I’m more concerned about the impact longer term. Like the MA market, there could be a short term boom in the individual and small group, but if this legislation eliminated the insurance companies ability to control medical costs, there will be a giant backlash against the health insurance industry (rightly or wrongly), if costs continue to spiral upward. Then we’ll be hearing more about a single payor to “fix” the problem.
Thanks again for the comment, it’s great to have some dialogue on this important piece of legislation.
As Craig has detailed, we are quite likely to witness the Law of Unintended Consequences come into play over MLR.
The people who crafted this thing are not too bright, are they?
Bubba:
Mandating MLR will probably have great populist appeal since it sounds good on paper. The simplistic argument is: “Do you want more of your premium dollars going to executive salaries and profits or to pay for your care?”
The reality of insurance is that consumers should want their loss ratios to be as low as possible. If the insurance company can spend some of your premium dollars on “administrative” costs to mitigate loss, that’s a good thing for everybody. I don’t want to total my car just so that I can collect on my auto policy.
That seems to get lost in the Health Insurance business. This will obviously take many years to play out, but I’m afraid there will be less incentive for insurance companies to hold down costs and simply process claims (like Medicare does).
I probably sound like an apologist for the insurance companies. If they act irresponsibly, I think they should be SEVERLY punished by regulators and/or by litigation.
Instead of punishing bad actors, mandating MLR’s just paints all companies with the same brush and limits a companies ability to be rewarded for appropriate management of care and appropriate cost containment.
Craig
Building on those thought…Ironically insurers may actually desire those whom they previously sought to exclude – Individuals with preexisting condition. These people will drive up costs, increase payouts, drive up premiums, and increase insurance company profits on the backs of all consumers.
Way to go Congress – You *#@!
The MLR Mandate would never hold up to a constitutional challenge in court. I don’t believe that the federal government can dictate how much money you have to spend on benefits unless they are receiving federal money. With that being said I can see insurance carriers getting out of Medicare Advantage completely. If this gets passed and the companies are successful in court I can see the death of Medicare Advantage. This bill is a complete disaster!