We-Have-to-Pass-It-to-See-What’s-in-It Fact of the Day

Since insurers will have to pay rebates to customers if they have too much overhead, think of this as a tax on taxes:

Among the hundreds of ObamaCare mandates is an accounting requirement that insurers spend between 80% and 85% of premium revenue on patient care, as opposed to administrative expenses, profits, etc. — known in the trade as a “medical loss ratio.”

The committee Chairmen recently wrote a letter to federal regulators meant to “clarify” their “legislative intent.”  They now say that when they wrote a clause “excluding Federal and State taxes and licensing or regulatory fees” from the definition of medical loss, what they really meant is that federal state taxes should be part of it.

Full Wall Street Journal editorial here.

Comments (9)

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  1. Bruce says:

    You want me to have sympathy? Didn’t these guys try to sell us out? Boo Hoo.

  2. Ken says:

    Good point, Bruce. But it’s not the insurers who are going to suffer. It’s their customers. That means you and me.

  3. Larry C. says:

    I think the Democratic committee chairmen would like to drive the private carriers out of business, and turn Blue Cross into a public utility.

  4. artk says:

    If you went to the supermarket and found that a quart of milk contained 25 ounces, or if you went to your bank and you cashed a check for ten dollars and the teller gave you 8, you’re be up in arms. The outrage would be uncontrolled.

    Aside from standing in the way of you and need care, exactly what value added do insurance companies provide that entitles them to even 20% of your medical care dollars? It’s an administrative cost that seems to have been constant for decades. Every other industry has been forced to cut their overhead, time for the health insurance companies to become more efficient.

  5. Devon Herrick says:

    This debate illustrates how something that politicians perceive as simple (e.g. spend more premium dollars on medical care) is far more complicated than they realize.

  6. John Goodman says:

    artk, one response to your point is that right now we don’t have anybody in the system other than insurers who care anything about controlling costs. Certainly the patients don’t, since they are encouraged to think that care is free. Certainly the providers don’t. The only way they can increase their incomes is by encouraging overutilization.

    So that leaves the insurers. This is a terrible way to control costs, and as you know it is the last way we would choose. But if you take away their administrative expenses, and do nothing else, health care spending will be a pure pass through and sky will be the limit.

  7. Don Levit says:

    I was wondering how insurers could make money when they have to guarantee every year a medical loss ratio of 80-85%?
    Then I read in a paper entitled “Will Employers Undermine Health Care Reform by Dumping Sick Employees?”
    On page 10 it states, “PPACA also reinsures insurers in both the individual and small group markets against the risk that their medical costs will be greater than 103% of expectations.”
    The footnote cites PPACA Section 1342.
    Why not the same protection for insurers for large employers who purchase insurance?
    Does the 80-85% rule apply to employers who self insure?
    For the paper, go to: http://ssrn.com/abstract=1651308.
    Or, go to benefitslink.com, click on news for 8-13-10.
    Don Levit

  8. Ken says:

    Don, sounds like the insurers are going to become public utilities. If that happens, costs will just get passed through and spending will never be controlled.

  9. Linda Gorman says:

    My health insurance company adds value by 1) promising to pay up to XX million for expensive people and supplies to bring me back to functioning should I have a very, very expensive automobile wreck or the equivalent and 2) by negotiating lower prices for many kinds of health care. I tend to try to negotiate lower prices for the rest thanks to a deductible that means I pay caash for everything routine.

    I wish that it would add more value for less, as it is expensive, but as ObamaCare has outlawed my kind of policy it is clear that its regulations are so distorting the available choices that it isn’t even close to approximating evem the lower than optimal value that I now have.

    All the individual mandate does is say that I have to pay for whatever a rent seeking interest group can convince a risk avoiding bureaucrat to add to the package as necessary “insurance.” The sky is the limit!