Big Component of ‘Obamacare’ Comes Online – Insurers Now Required to Spend 80% of Premiums on Medical Care

On Friday, the federal government launched an element of the Affordable Care Act that is likely to have far-reaching consequences on the cost of health care in the United States in the form of new regulatory controls on how private health insurance companies spend the money they collect in premiums. Rick Ungar,a left-leaning specialist on health care policy who writes for the corporatist site, Forbes.com, explains:

That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80 percent of the consumers’ premium dollars they collect—85 percent 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.

Today, that bomb goes off.

Today, the Department of Health & Human Services issues the rules of what insurer expenditures will—and will not—qualify as a medical expense for purposes of meeting the requirement.

As it turns out, HHS isn’t screwing around. They actually mean to see to it that the insurance companies spend what they should taking care of their customers.

Here’s an example: For months, health insurance brokers and salespeople have been lobbying to have the commissions they earn for selling an insurer’s program to consumers be included as a ‘medical expense’ for purposes of the rules. HHS has, today, given them the official thumbs down, as well they should have. Selling me a health insurance policy is simply not the same as providing me with the medical care I am entitled to under the policy. Sales is clearly an overhead cost in any business and had HHS included this as a medical cost, it would have signaled that they are not at all serious about enforcing the concept of the medical loss ratio.

2 Comments

  • Bartow-Joe
    December 5, 2011 - 1:43 pm | Permalink

    When does this include all forms of insurance?

    • December 6, 2011 - 4:38 am | Permalink

      My understanding is that the MLR regulations went into effect for all private health insurers on Friday.

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