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Aaaaand, the fuse has been lit. Insurers are not happy. Not even a little bit. What they feared most about the Affordable Care Act -- more than insuring people with pre-existing conditions, more than leaving children on their parents' policies until age 26, more than having to lift lifetime caps, more than any of those things -- was the limited Medical Loss Ratio (MLR).
The PPACA limits the "padding" between actual claims paid and premium collections to 15% for large groups and 20% for individuals and small groups. Any excess the insurer has must be refunded to insureds by the end of the year for which the MLR is determined. Everyone scoffed at the time over these limits, figuring the regulations would be broad and wide enough for insurers to run through the loopholes.
But no. Final rules were issued last week and insurers didn't get anything they wanted. Via Rick Ungar at Forbes:
This is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare—but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.
Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid. If they could, we likely would never have seen the extraordinary efforts made by these companies to avoid paying benefits to their customers at the very moment they need it the most.
Ungar's logic at the end is a little bit wrong. The current MLR, just for perspective, is about 40-45%. That means for every dollar paid toward health coverage, only 60 cents or so goes to actual health costs. The rest is considered overhead -- agents' commissions, big CEO salaries, and of course, that shareholder profit that benefits those with the money to actually buy shares in these companies. Medicare, on the other hand, has a very low overhead attached to it -- about 7-8%, because it is in the business of providing medical benefits, and not making a profit or paying CEOs handsome salaries.
The only reason for insurers' efforts to deny benefits was simply to boost up the bottom line, and in many cases, the only reason for big premium hikes was also to boost that bottom line and the profits distributed to shareholders. Now insurers will find themselves in the business of actually paying for medical benefits. The regulations, by the way, do not allow them to include agents' commissions in their "medical expense" column.
Ungar does, however, ask the right question toward the end of his post:
So, can private health insurance companies manage to make a profit when they actually have to spend premium receipts taking care of their customers’ health needs as promised?
Not a chance-and they know it. Indeed, we are already seeing the parent companies who own these insurance operations fleeing into other types of investments. They know what we should all know – we are now on an inescapable path to a single-payer system for most Americans and thank goodness for it.
Whether you are a believer in the benefits of single-payer health coverage or an opponent, mark this day down on your calendar because this is the day seismic shifts in our health care system finally get under way.
If you thought that the Obama Administration chickened out on pushing the nation in the direction of universal health care for everyone, today is the day you begin to understand that the reality is quite the contrary.
He's right, particularly about what path this sets the nation on. What Republicans feared most was that insurers would lose their gravy train and jump off before having to actually buckle down and provide health benefits, leading states to adopt single payer plans one by one, until the entire nation had single payer health insurance. This is why Michele Bachmann wails about "Obamacare leading to socialism", and why they fought so hard against all of it. Because now they will have to not only limit their greed, but they'll also have to report it publicly for everyone to review. That was also part of the PPACA. Each year insurers will have to publish their full balance sheets showing what they have spent, how they have spent it, and what their actual MLR is.
There is no more effective way to drive the cost of health care down than to take the profit incentive away from insurers. As time goes on, we'll look back at the excesses of the past with a shiver, while insurers figure out other ways to take your money. They know the train has left the station on this one.