Health care reform has left the realm of shouting headlines and entered the phase of sausage making as the industry and government leaders hammer out how it will work on the ground.
Flickr photo by truthout
A fascinating debate that raged in 2006 in California may provide a hint as to what’s in store on the federal level.
At issue is the concept of the “medical loss ratio.” It’s a measure of the proportion of premium dollars health insurers spend on medical expenses for patients. Under the federal health care reform law, health insurers must spend 80 to 85 cents on the premium dollar on medical expenses. The remainder is meant to cover administrative costs and profit.
So, what exactly is a “medical expense?” Undeniably it’s money insurers spend on care such as doctor visits, surgeries and vaccines given to policyholders. Anything beyond that, though, seems to be up for debate, such as expenses for nurse hotlines and disease prevention programs.
Politico reported yesterday that there is still plenty of room for political maneuvering as big insurers work with the National Association of Insurance Commissioners to define what counts as a “medical expense.”
If California’s experience is a guide, it may be a battle worth watching.
In 2006, former then-Insurance Commissioner John Garamendi went through a process to move the “medical loss ratio” from 50 percent to 70 percent for individual health insurance consumers. (The federal ratio for individual policies will be 80 percent under the new health reform law.)
Garamendi made his case for updating the regulation from the 1960s, noting that he has authority to withdraw approval for a health insurance policy "if the benefits provided are unreasonable in relation to the premium charged." (In lay terms, that means Garamendi can put the smack down if customers aren't gettting what they pay for.)
Garamendi's office made the changes in the end. But their measured argument for changing the 40-year-old standard did little to quell the opposition, whose comments are included (and largely rebutted by Garamendi) in this document.
The insurance industry protested that the 70 percent ratio was too high. The change could cause “chaos.” Others warned that the change could lead to a rise in the ranks of the uninsured.
I'll leave you with a sampling of comments in opposition to that 2006 California change that was less drastic than the one currently on the national table.
- By Steven Lindsay, California Association of Health Underwriters
While we consider this a “taking” of assets which we believe is illegal on its face, we are even more troubled by the breaking of the agreement. We as agents have sold products to our clients under the rubric that they were going to get what was promised in the contract as signed and now the regulator who is mandated to protect them, is proposing to change the rules in the middle of the game and force carriers to, in all probability, take the products off the market and move the insured to products that meet the new standard. This will lead to mass chaos and market disruption that is totally uncalled for.
- Mark Sektnan, AIG
The proposal to significantly increase the loss ratio requirement for in force policies can severely impact a company’s ability to operate profitably in the market as older products were developed and approved under the regulations in force at the time they were filed. Further, companies may choose to not renew coverages for policyholders that may have cancellable, optionally renewable or conditionally renewable provisions in their policies.
- JP Wieske, The Council for Affordable Health Insurance (an advocacy group composed of health insurers and other businesses)
In fact, CAHI has consistently found that rate regulation such as that being considered in California has led to higher overall rates, fewer consumer choices, and an increasing number of uninsureds. ….
California’s competitive market has already resulted in many insurance products having loss ratios that exceed 50%. However, increasing the minimum loss ratio to 70% is excessive and unnecessary. …
We have issues both with the proposed 70% loss ratio itself, as well as the application of this provision. While it is easy to assume a 70% loss ratio is appropriate, the truth of the matter is that the number is too high.
- James Oatman, Assurant Health
As a company, we have serious concerns with an increase in the minimum loss ratio for individual health insurance policies to 70 percent. We recognize the intent of the proposed regulation is to provide additional consumer protections for individual health insurance purchasers. While we recognize and support well-intended regulation for this purpose, our national experience and expertise in this market indicate the proposed regulation would have unintended consequences leading to significant market disruption, driving many individuals and families into the ranks of the uninsured – none of which would result in the best interest of any consumer.
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