FactPower: Facts, figures, and talking points for Resistance activists.
Medical Loss Ratio Reform
Put on your poindexter glasses and propeller beanie! We've gained some insight as to why health insurance premiums are so high. Even better, we think we have a solution that might save 10-20% of premium costs in the individual market. We've written a paper about it and will be pitching it to lawmakers. We can hope they listen.
If you don't know what a Medical Loss Ratio (MLR) is, you're not alone. MLR is the percentage of health care premiums used to pay medical expenses for your plan. If your plan's MLR is high, you're getting good value for your premium dollar. If it's low, they're overcharging you. Under Obamacare, the MLR has to be at least 80% for individual plans and 85% for group plans (like through your employer). And if it's not, insurance companies have to give you a refund for however much they overcharged. Sounds pretty good, right?
Unfortunately insurance companies are crafty, and they are more interested in the other side of that number: They get to keep as much as 15 - 20% of the premium for profits and administrative fees. The higher the premiums, the higher the profits. But they can't just raise premiums, because that would cause the MLR to drop. No, they also have to raise the amount of their claims payouts to keep the MLR high, so they don't have to refund everyone's money! How do they raise claims? They simply overpay for services. So to earn an extra buck, they waste $4 or $6.67 of your hard-earned money. (Yes, that really happens -- mostly on individual plans.)
If you understood that, then give your beanie propeller a spin. Also pour yourself a drink, because it gets worse. In the Senate health care bill (the one that was voted down), Republicans would have handed over the control of the MLR to states beginning January 1, 2019. However, they bungled the language. Instead of regulating both profits and administrative fees, their language would regulate only administrative fees. We would get ripped off as badly, just for different reasons.
Did Republicans do this accidentally, or was it a very slippery trick? Nobody knows. It all comes down to whether they could accidentally categorize a profit as a "cost," and the outcome would depend on whether the implied intent would hold up in court. The problem was not very obvious, and as far as we know, we were the only people who caught it. Not even the Congressional Research Service or the Kaiser Family Foundation noticed. Insurance regulators have since looked at the language and have told us they find it ambiguous too. Why should we care, since the bill is dead? Because the language could be copied and pasted into another bill down the road. None of this stuff goes away until the president scribbles on a bill with his sharpie. We've just got to make sure it's an acceptable bill.
We propose a pretty simple fix to this whole mess: Simply set a limit on how much an insurance company can take in profits and administrative fees -- a dollar amount, not a percentage of premiums. Then allow the insurance companies to keep a small percentage (maybe 5%) of whatever unused premium money they refund to consumers. Profits would no longer be related to premiums. Competition would be based on market share. Whichever company does the best job of managing claims (haggling on our behalf) and lowering premiums would get our business. And we could all expect a "real" refund (of maybe 10% of our premiums on individual plans) at the end of the year.