Nearly three weeks after U.S. District Judge Roger Vinson ruled the president’s health care overhaul unconstitutional in a lawsuit brought by 26 states and the National Federation of Independent Business, confusion is plaguing the American health care system. Some states are preparing to enforce the law while others have adopted a wait-and-see approach.
The Obama administration, meanwhile, has asked Vinson to clarify that states must implement the law while the appeals process runs its course.
Despite all the uncertainty, private insurers aren’t taking any chances. They’re in the midst of adjusting to the law’s requirement that they spend a certain percentage of their revenues on medical claims. ObamaCare’s advocates hope the provision will ensure consumers get good value for their premium dollars. And if the rule makes life harder for insurers, so much the better.
Unfortunately this “minimum medical loss ratio” regulation will harm not just insurers but workers and employers too, as they’ll face higher prices and fewer choices for insurance.
ObamaCare requires insurance companies to spend at least 80% of premiums received in the individual and small-group markets–and 85% of premiums received in the large-group market–on claims. If an insurer is unable to meet those targets, it must rebate the difference to consumers.
These medical loss ratio (MLR) rules are designed to limit supposedly wasteful spending on administration and profits to 20% in the individual and small-group markets, and 15% in the large-group market.
But insurers are hardly profligate. According to Fortune magazine, the health insurance sector is among the least profitable in America–with a mere 2.2% profit margin. That’s good enough for 35th place.
Further, many insurers’ administrative costs–for salaries, rent and the like–are fixed. ObamaCare instructs them to drive those costs down as a share of their overall revenues. In order to do so, they’ll have to raise premiums or lay off workers.
Initially, though, insurers are simply taking ObamaCare on the chin.
WellPoint, the health insurer with the largest total enrollment, is set to take a $300 million loss this year due to MLR-related costs. Already the insurer has reclassified more than half a billion dollars in administrative expenses as medical spending to help meet the loss-ratio target.
Connecticut-based Aetna, which this month decided to pull out of Colorado’s individual market because of concerns about its ability to compete there, may hemorrhage up to $100 million thanks to MLRs this year.
And Iowa-based Principal Financial Group has stopped selling health insurance entirely, leaving about 840,000 people to scramble for new coverage–and depriving everyone else of one more option for insurance.
These new medical loss rules won’t just harm insurers–they’ll also deliver a blow to the broader economy.
Last week the nonpartisan Congressional Budget Office revealed that health care reform will cause 800,000 people to leave the workforce over the next decade. That’s 800,000 people who won’t be helping extricate the economy from the recession–and won’t be paying taxes.
Many businesses that offer health insurance have announced that they can’t afford to provide policies that comply with the new rules. They’ve threatened to quit providing insurance altogether or lay off employees.
Eager to avoid such an outcome, the Obama administration has exempted some 915 entities from the health law. These enterprises all offer “mini-med” plans, which offer limited health benefits to enrollees. These plans all run afoul of the law’s minimum coverage limits as well as the MLR rules.
Organizations large and small, from McDonald’s to the town of Albion, N.Y., with its five enrollees, have received one-year waivers. These waivers must be renewed on an annual basis until 2014, when the insurance exchanges and subsidies kick in.
But the administration has not explained how these organizations will have any more luck complying with the MLR rules next year than they do this year.
Further, if the MLR is such a critical and urgent consumer protection for all Americans, why are more than 900 favored entities–including a few dozen Obama-friendly labor unions–getting a free pass while the rest of us politically unconnected folks pay more for insurance?
Makes one wonder exactly whose future the president is intent on winning.