Monday, November 22, 2010

The 300 Page MLR Rules—About as Valuable as Taking Your Shoes Off at the Airport

This whole medical loss ratio (MLR) provision in the new health care law is a fool’s errand. When it comes to controlling health care costs it is about as productive as taking your shoes off at the airport is valuable at improving air travel security.

Without a doubt, the new health care law does far too little toward making health care costs affordable. And, marginal health insurance carriers have little hope of doing a lot to bring costs under control.

But for consumers what matters is cost--and that is measured by a health plan's monthly premium. The cost of an insurance policy is market driven. In any market on any day, that insurance company has to quote a competitive price no matter what their expense ratio in that market.

Which insurance policy is low cost health insurance is determined by its price—not some convoluted MLR formula developed by bureaucrats that runs about 300 pages.

Too often people inside the Beltway underestimate how price competitive the health insurance market is. Go to the Internet and you can almost instantly get a number of quotes comparing benefits and price. Go to your local insurance agent and you get the same thing.

Show me a health plan with a 78% MLR and one with an 81% MLR and I cannot tell you which one has the lowest price. The higher MLR plan may be doing more to manage costs and thereby producing a lower premium rate. Heck, Medicare has the lowest MLR in America and is under constant criticism that it does not manage costs.

And don't underestimate the value these little health insurers bring to the market. They are the ones who must quote low rates to survive and they do more than many can imagine to keep the big guys honest.

But the authors of the new health care law think consumers are dumb and need the federal government to draft thick incredibly complex MLR regulations so they can be saved from themselves.

The insurance exchanges make a whole lot more sense than these MLR regulations—side-by-side comparisons of plans by cost and benefits making the health insurance shopping experience clear will be enough without this huge addition to the federal bureaucracy.

By HHS’s own calculations over 20% of those in the individual market are in plans that spend more than 30% on administration—another 25% are in plans that spend 25% to 30% on administration.

HHS expects 9 million consumers to get premium rebates.

But that assumes that the insurance companies that would pay those rebates are going to stay in the market and lose money paying them. Of course many insurers with little hope of ever being able to comply are not going to do that.

The new guarantee issue and pre-existing condition reforms don’t go into effect until January 1, 2014.

How many of those 9 million consumers are going to see their insurance company exit the market instead of lose money paying rebates?

If these consumers lose their insurance because their carrier exits they have to buy it from a different insurance company—but they are going to be subject to underwriting and pre-existing condition rules that are still in effect. You can see the headlines: “Cancer patient loses coverage under the Obama health plan and can’t get new coverage.” And, yes they can go to the new high risk pools--in six months and maybe for less coverage and higher costs.

Afraid that many people will lose their coverage, HHS has said it will grant waivers to these rules when there is the potential for the market to be “destabilized” by the implementation of the MLR rules.

I presume that means Democrats are scared of headlines reporting about consumers who have lost the insurance they wanted to keep because of the new law.

So, when the day is done, HHS is getting ready to implement a huge and complex regulation complete with massive reporting requirements but won’t do it if it disrupts any of the high expense carriers with big state market share the law is intended to go after.

And to the extent HHS does implement these new MLR rules who do you think the winners are going to be? It won't be consumers, it will be the giants of the health insurance market who dominate the market today and have an expense ratio advantage driven by their size. This is the jumbo health insurance company full employment act!

HHS and the TSA—just take your shoes off and keep your mouth shut!
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