An interesting article. I wonder what people think. Here’s an excerpt:
[T]he provision of the law…called the medical loss ratio…requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.
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.
This is something I hadn’t really thought about at all in any discussion I have had about the Affordable Care Act, but it sure as hell sounds like a welcome change to me. I wonder what other people think.
It’s really going to vary by company. PacificSource, a NW based group insurer, notified us months ago that they already meet this requirement and have always met the 85% requirement. I have not heard the same from Providence Health Plan, though. I hope it hits UHC/UBH hard. That is one, possibly two, atrocious health care company(ies).
UHC is atrocious, from what I hear. My wife’s employer (back when she had a job) actually had an internal office whose job it was to intercede with UHC on behalf of their employees.
I wonder how the 80% number was arrived at?
I used to work for a TPA, Ron. We dealt with nearly all of the insurance companies at one point or another. UHC/UBH was head and shoulders above all others in terms of monstrousness. After seeing what they were like I will never, nevernevernever be covered by them. As the guy in charge of selecting insurance where I work now, I will never even look at their numbers.
UHC is the one company that I hope will be driven out of business by the new rule.
The author appears to be off-base. One of his co-bloggers writes that the majority of insurers are already in compliance with the rule, and that in fact the new rule for calculating is easier to meet than the old rule.
http://www.forbes.com/sites/timworstall/2011/12/03/what-bomb-buried-in-obamacare/
So, no explosion, no doomed insurance companies.
That’s a shame, Robert. I can always hope, but hopelessly.
“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.”
How does he know this? He made it up, of course. Most insurers are already meeting the requirement, most insureds will get no rebate, and the average for those who will is under $40. The law will force a few bad actors into line, but it’s not a “bomb” and it won’t change much for most people.
http://www.kff.org/healthreform/upload/8305.pdf
UHC in particular expects to pay back less than 1% in received premium as rebates.
http://broker.uhc.com/articleView-9414
What’s a TPA?
[ threadjack ]
And I STILL don’t understand how the passing of Ray Bradbury goes without comment on this blog.
[ /threadjack ]
TPA = Third Party Administrator. It’s a company hired to administer a health plan for, as an example, a union. As a TPA you will invariably deal with a variety of health insurance companies. UHC was terrible when it came to approving vitally necessary procedures. Just awful. Group Health was called Group Death by everybody who dealt with them.
“That’s a shame, Robert. I can always hope, but hopelessly.”
If it happened, there would be pretty bad political blowback against the Democrats. So it would have been a mixed blessing for you. ;)
Nah, there’s really no consequences from UHC exiting the market. Other, better companies would be more than happy to fill their void. If a significant number of health insurance companies couldn’t pull a profit under those conditions then there’d be consequences a plenty.
Yeah, other countries with similar systems (Switzerland, the Netherlands, Taiwan) have shown that private companies can easily do well under such legal regimes.
What this may do is reduce the ability of HMOs to spend money on political lobbyists. Money on lobbyists is going to come out of shareholder payouts or CEO bonuses. But we’ll really have to wait a couple of years to see how this shakes out.
Robert @4, I would concur, except that instead of “off-base” I would say “completely full of shit”. You rarely see that kind of faux-capitalist wankery outside of the op-ed pages of the Wall Street Journal.
http://www.ghc.org/
Maybe the Group Health concept will catch on. My Wife has been a member for 40 years and is very happy with their service.
billwald @13, I really like that idea. Insurance as a non-profit organization makes a lot of sense.