Feds Define Medical Costs

What is a medical cost and what is an administrative cost?  It took the federal government 308 pages to answer that question in its interim regulations on Medical Loss Ratio (MLR). Why does anyone care? Because under the new health reform law insurers must spend 80% of your premium on medical expenses (85% for group plans). Fail to meet this standard and the insurers must give you a rebate.

Broker commissions are overhead; federal taxes are not. Presumably, money paid to fraudulent health care providers (who are never caught) are medical expenses. Activities to detect fraud are administrative expenses, but activities to recover fraudulent claims are not. Activities to boost quality can be excluded from overhead calculations unless they’re designed to detect fraud. “Those activities which are designed primarily to control or contain costs…” are not quality improving activities that can be excluded from administrative cost calculations. Clear as mud?

Theoretically the regulations were designed to protect consumers from excessive marketing costs and overly-generous executive pay. In reality, MLR caps will cause some plans to simply go away because they can never profitably meet the requirements. This includes inexpensive mini-med plans which have higher overhead (because benefits are capped). The new regulations give mini-meds a temporary waiver, however.

All told, 111 companies, unions and other organizations have received waivers in the past few weeks — suggesting that we have a major problem here. Washington is still in denial, however. Here is Nancy-Ann DeParle, explaining the minimum loss ratio rules: It’s all gain and no pain.

Comments (7)

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  1. Ken says:

    How bizarre.

  2. Bruce says:

    Okay, it’s a nightmare, but what did you really expect?

  3. Larry C. says:

    This is what happens when you let the government design an insurance plan.

  4. Neil H. says:

    This whole thing is really ridiculous. First they impose a regulation that potentialy causes 2 million people to almost immediately lose their health insurance. Then they grant waivers to 1 million of them — the ones who work in places that might attract newpaper headlines. Then they try to justify the whole enterprise as “consumer protection.”

  5. Greg says:

    This is idiocy.

  6. Larry C. says:

    The idiocy isn’t going to go away, Greg.

  7. Who is going to monitor/police this to ensure the new ratio is being met for the millions of policies out there? How is the new law being enforced?