Health Overhaul May Be Worse Than Written, If Sen. Baucus Has His Way
Senator Max Baucus recently admitted that he never read the new health care law. But that hasn’t stopped him from trying to re-write it after the fact, in a way that would drive more health plans from the market and give consumers less choice!
The new law reduces choice of health plans by giving government the power to control the Medical Loss Ratio (MLR) — the amount of dollars an insurer spends on medical care divided by the total premiums. Policies that cover large businesses will have to achieve an MLR of 85 percent, while those for small businesses and individuals will have to achieve an MLR of 80 percent. This sounds simple but leaves many issues unresolved.
Calculating he MLR can be quite complicated — especially when the government gets involved. Suppose, for example, an insurer invests in information technology that it gives to providers in its network in order to improve co-ordination of care. Is that a medical cost?
Furthermore, the MLR regulation is deadly for increasingly popular consumer-directed plans. Suppose a traditional policy costs $4,000 and spends $3,400 on patient care, for an MLR of 85.00. With the consumer-directed policy, the patient controls $800 more of the medical spending than with the traditional policy, through a higher deductible, and his premium goes down by $800. In this case the MLR goes down to 81.25 ($2,600/$3,200). There is no real difference, but the new regulation could require insurers to rebate $120 — the amount by which the ratio falls short of the required MLR. This could force consumer-driven plans to leave the market even though they have lower total costs. That’s because cutting out the middleman and giving more health dollars to patients to control themselves motivates them to get better value for money.
But Senator Baucus wants to throw yet another wrench into the works. Taxes are not medical care, and they are not under any health plan’s control. So, the legislation excludes taxes from total costs used to calculate the MLR. Senator Baucus leads a group of senators who now assert that they meant to pass a bill that exempted some taxes from health plans’ MLR calculations, but not corporate income taxes.
If it prevails, Baucus’ flawed notion will lead to an even greater reduction of choice of health plans. Suppose two insurers of the same size compete in a region’s large-group market. They earn premiums of $1 million each. They each spend $850,000 on medical claims, thereby achieving an MLR of 85 percent. One insurer is for-profit, earning a profit of 4 percent ($40,000), and pays combined federal and state corporate income tax of 45 percent ($18,000). Its MLR automatically shrinks to 83.5 percent and ObamaCare shuts it down.
The whole focus on MLRs is a politically seductive waste of time: MLRs are irrelevant because the insured and their employers tend to choose health plans based on other criteria — likely invisible to politicians and bureaucrats. Plans with relatively low MLRs have increased market share in the last few years.
“Suppose, for example, an insurer invests in information technology that it gives to providers in its network in order to improve co-ordination of care.”
Has this actually happened anywhere? Would be interested in details, as it certainly has not happened in our state. Information only flows towards insurers, not back to us.
Steve
Actually, if you look at the information technology the heath insurance companies currently use, you’ll find that they a decade or two behind the current state of the art. They are still dominated by the same mainframe systems that every other industry abandoned years ago. The idea of anything but paper based claims seems to be a alien concept. Look at how they deal with diagnostic and treatment authorizations, manual systems, paper and phone calls. The only “innovation” you’ll find is the way they each use proprietary procedure and forms as a way to compete.
You would never allow a bank to give you 80 dollars every time you went to an atm to withdraw 100 because of “administrative” overhead.
No, you would never allow a bank to do that, but that’s because you take your money out of the bank to spend it on goods and services you decide.
If the government ran banking like health care, the bank would have huge bureaucratic costs because the government would have your employer choose your bank for you.
Furthermore, you’d never actually take cash out of the bank, but the bank would process claims for everything you want to buy from in-network providers (i.e. those stores which use the same bank as your employer does) and fix the prices with the providers so you had no idea what they cost.
The more important point is that nothing (good) is accomplished by price controls, which is what the MLR is.
This is a stupid regulation wich will accomplish nothing worthwhile.
artk–Mainframes are so antiquated that they are estimated to be a mere $3.4 billion market (sales), primarily to data intensive big companies in finance and, who would have guessed, insurance.
For really antiquated data processing and failed procurement processes one needs to contact the FAA, DOD, IRS, FBI, and Social Security Administration.