Medical Loss Ratio and the NAIC briar patch

published by Joe Jarvis on Wed, 09/01/2010 - 10:16

Here is another very arcane policy argument amongst the weeds created by PPACA (the Patient Protection and Affordable Care Act or "Obama-care"). The National Association of Insurance Commissioners has recently voted on a preliminary outline of what health insurers will be able to count as health costs. This exercise is required because of the provision of PPACA that "insurers spend at least 85 percent of subscriber premiums on medical costs in the large group market and 80 percent for small group and individual plans." (Find this information in a Politico story published here.) Further excerpts:


It was a rare moment in the drawn out and highly partisan health care debate: a unanimous vote.

 

Despite divided political views on the health reform law, all commissioners voted together to approve the document, a move forward that drew the ire of insurers.

While insurance commissioners moved forward unanimously, familiar fault lines emerged between consumer advocates and industry over the document and how it categorizes medical spending.

“In general, we are very pleased,” said NAIC consumer advocate Timothy Jost, a professor of health policy at Washington & Lee University. “The process has been very open and participatory. We feel like our concerns have been listened to.”

America’s Health Insurance Plans, the trade organization that represents health insurers, was unenthused about the document and warned of dire consequences. AHIP circulated a letter detailing its concerns with what will be counted as a quality improvement, urging that spending on complying with new "ICD-10" coding requirements, which require upgrading systems tailored to ICD-9 specifications, and anti-fraud efforts ought to make the cut.

 

The vote still leaves unresolved many contentious issues in MLR regulation, chief among them how federal taxes will be factored into the calculation. Excluding more taxes from the calculation would make overall spending smaller, thus helping increase the percentage of spending on medical costs.

Dr. McCanne's Comment:

 

The National Association of Insurance Commissioners (NAIC) has finally come to agreement on the reporting form that likely will be used to determine whether or not the private insurers are in compliance with the required medical loss ratios (MLRs). The agreement is being reported as a victory for health care consumers and a defeat for the private insurance industry, but this ignores the crucial overriding issue.
The debate was over how much of their administrative costs the private insurers would be able to pass off as quality improvements that could be classified as medical expenses. Such reclassifications would allow the insurers to spend more for other non-medical purposes such as marketing and profits. Much of their attempted overreach - some described in Karen Ignagni's letter - was rejected.
This is not a victory for the health care consumer. We are still stuck with a middleman industry that has been granted the right to keep 15 to 20 percent of our premium dollars to use for their own purposes. Congress and the President rejected a model of reform - an improved Medicare for all - that would have eliminated much of this waste plus the waste of the excess administrative burden that the insurers place on physicians and hospitals. The insurers get to include the latter as medical costs, further padding their margins, but administrative waste doesn't benefit anyone's health.
With all of the attention being given to the details of implementing the Patient Protection and Affordable Care Act (PPACA), too many have forgotten about the fact that the financing model in PPACA is irreparably flawed and can never bring us affordable health care for everyone.
My comment:
These various skirmishes around the implementation of PPACA remind me of the briar patch episode in "The Song of the South", in which Brer Rabbit persuades his captors to fling him into the briar patch by saying he would much rather be eaten than suffer scratching by briars. The health insurance industry is screaming in mock pain about the implementation of PPACA, in effect begging not to be thrown into the briar patch. Ladies and Gentlemen: America's Health Insurance Plans (AHIP) wrote PPACA. They love PPACA. PPACA guarantees them enormous profits from now on. The argument NAIC just concluded began with the premise that health insurers should be keeping up to 20% of the premium dollar for administrative expenses. This is an unconscionably high rate of overhead and completely unnecessary. Overhead for health financing need not be any higher than 3% or 4% of the premium dollar.
Some state ought to strike out on its own and demand a lower administrative rate from health financing. Why not Utah?
Yours,
Dr. Joe Jarvis