Mandate NO! MLR SI! (from Angry Bear)

(Crossposted from Angry Bear)

No not the striking down of the mandate part, heck probably a thousand fingers were poised over an equal number of 'Send' keys when the ruling came down. Me? I took a shower and started thinking about the practical implications of ACA as it will operate under current law as modified today.

Starting with the MLR. Which you did hear about here first in this AB post from July 2009 HR3200 Sec 116: Golden Bullet or Smoking Gun . MLR stands for Medical Loss Ratio which in the final version of ACA was set at 85% for the Group market and 80% for the Individual market for health insurance policies issued by private insurers. Now 'Medical Loss' is itself an interesting term of art, it represents the actual amount of insurance premiums collected 'lost' via being expended on actual care paid for under your policy. That is for insurance companies the actual end service being delivered from purchase of their product is from their perspective a dead loss to be reduced. Hence a business model built around denying claims.

MLR minimums start to flip that model on its head. Under the rule if the ratio of premium collected to provider payments issued exceeds 15% or 20% respectively in Group or Individual market the difference has to be rebated to the policy holder. And indeed such rebate checks actually went out this year, this provision having already kicked in. Well after this morning's ruling that rule will continue to operate until specifically repealed. And it is important, though maybe not as much as I was able to convince Donny Shaw of when he put this post up on Open Congress on Nov 14, 2009 The Most Important Health Care Reform Provision You've Never Heard Of. For example Richard Escow of HuffPo and elsewhere is of the opinion (expressed semi-privately to me and some others), that while important MLR can be gamed. And in fact I discuss that somewhat in my original 2009 post, feel free to rip on this in comments. Me? I still think MLR is transformational.


So what things are NOT included as 'medical losses'? In short: administration, management, and direct profits from operations. (For example gains from retained and reinvested profits would not I think count against the company). Currently a lot of health insurance administration is focused on making sure that people likely to submit claims don't get signed up and/or denying claims to those who for whatever reason obtain coverage. Well various separate 'must cover' 'no pre-existing condition exclusion' rules take care of much of the first part, under ACA the companies have little room to just turn customers away. And MLR installs limits on the second part. While companies have an incentive to trim their medical 'losses' as close to the minimum as possible, every dollar spent doing so puts a squeeze on the same 15% or 20% of premiums they need to pay management salaries and return profits to shareholders. While every dollar squeezed out of the claims process by increasing efficiency and throughput of claims (i.e. actually paying providers on a timely basis with a minimum of paperwork requirements) leaves that much left over for management and shareholders. Gosh all of a sudden we have a business model based on efficient DELIVERY of services rather than DENIAL of them.


Paging Rusty Rustbelt! And Mike Halasy! Because I would love to see how this argument plays to people from the provider community. Particularly folk who have been on both sides of the overall issue. And of course I welcome comment from everyone else. I have been largely absent from the Health Care Debate since actually passage of ACA, the ball went into the lawyers' court and I am if anything less a lawyer than I am an economist. But after this morning we are right back in the policy analysis game. To which I say "Put me in coach!"