Remember the phrase "medical loss ratio"? If you weren't paying close attention during the ugly, polarized debate over the health-insurance overhaul, you easily might have missed it. But it was one of the cornerstones of the new law's attempts to restrain the growth of health-care costs. And now its potential effectiveness is on the line in a battle underway in an unlikely spot: the Orlando area's swank Gaylord Palms Hotel & Convention Center.
An insurer's medical loss ratio is the amount of its revenue that it spends on the actual delivery of health care, versus profits, administrative costs, and other overhead. The law sets a floor: 85 percent for large-group plans such as those sponsored by employers or unions, and 80 percent for policies sold in the personal and small-group market.
Meeting those standards shouldn't be a problem for large nonprofit insurers, such as Philadelphia's Independence Blue Cross, which reports a systemwide medical loss ratio of nearly 90 percent. But for-profit insurers often report ratios well below the new thresholds, and some states have loose or nonexistent requirements. So, at least in theory, the new national minimum MLR should push insurers to operate more efficiently and restrain premium growth. If they miss the ratio, they have to rebate the difference back to policyholders.
Unless they can find a loophole, that is. Which brings us back to the Gaylord Palms.
(Update) Jonathan Cohn, who has followed the debate closely for the New Republic and Kaiser Health News, says that during a series of votes Thursday by state insurance commissioners, the Obama administration and its allies managed to stave off attempts to undermine the value of the minimum medical loss ratios.
Click here to see Cohn's update post, "Obamacare in Tomorrowland," in which he describes the fight and its resolution:
Like so many other elements of the Affordable Care Act, the MLR regulations leave a lot of room for interpretation and discretion. Although the law sets the numerical targets for what insurers spend, it doesn’t stipulate exactly how the government should tally and process those numbers. Instead, it lets the Secretary of Health and Human Services (i.e., Kathleen Sebelius) make those decisions. And it instructs her to consider, although not necessarily follow, the recommendation of the National Association of Insurance Commissioners--the group meeting now at the Gaylord Palms Resort, just down the road from Disney World.
The group has already laid down a template for what the regulation should look like. And, overall, the template is closer to what the consumer [advocates] want than what most insurers and their allies want. But with a final vote scheduled for Thursday, representatives for industry groups have been lobbying furiously to weaken the regulations. [Former Cigna executive Wendell] Potter, in his Huffington Post dispatch, says "the insurance industry and other special interests are represented here by more than a thousand lobbyists"--compared to less than 30 on the consumer side. (I haven't been able to verify this, but it certainly wouldn't surprise me to see a large disparity.)
And what do these lobbyists want? Brokers don’t want their commissions included in the MLR calculations, since insurers would do everything in their power to minimize those commissions--perhaps even bypassing the brokers altogether. Many insurers want the ability to figure out an average MLR for all of their subsidiaries, across state lines, rather than calculate one for each “licensed entity” in each state. Some insurers also want to change the “confidence interval” for calculating some special exceptions to the MLR--which is really complicated to explain but would have the effect of lowering the threshold. (For more details, see Julie Appleby's report at Kaiser Health News.)
The issues are even more complicated than they sound and, on some of the narrower points, the insurer lobbyists make reasonable arguments. Overall, though, giving ground to the insurers would dilute the power of the MLR ratio to restrain premiums. For example, if insurers can average out the MLR across state lines and across lines of business, they'll still have the ability to jack up premiums--and extract high profits--in areas with little insurance competition. As for the brokers, the whole point of reform is to make insurance more accessible to individual consumers. If it all works out, people won't need brokers to find a policy and, as a result, they won't need to pay for that service.
By Wednesday afternoon, nobody I had consulted seemed quite certain about how the vote would go. The administration has dispatched some of its top policy officials from HHS--including Jay Angoff, Liz Fowler, Steve Larsen, and Karen Pollitz--in what appeared to be an effort to steel the commissioners’ resolve and hold the line. If the administration can say it's simply validating the judgment of state insurance commissioners, it will be much easier to issue strong regulations.
But it’s not clear whether they’ll succeed. Nor is it clear how the administration will react if they don’t. Yes, the administration wants a tough set of regulations that will make insurers behave;. But it also wants to avoid headlines about insurers threatening to drop plans because “Obamacare” was too tough on them. I don't have a great fix on how this debate is playing out internally, but I gather not every official within the administration agrees on how to reconcile those goals.
Here's Wendell Potter's take on the situation - the renegade insurance executive thinks it helps the cost-control cause that UnitedHealth Group, the nation's largest insurer, just reported a 23 percent jump in third-quarter profits. Politico is also there following it closely - click here to see its latest coverage.