The Affordable Care Act Part VI: Regulating Insurance and Consumer Protection

[TexasTowelie]

By Dr. Brian Carr
President, Behavioral Health Associates, Lubbock, Texas, 1991-Present
Chairman, City of Lubbock Board of Health, 2013
Submitted on September 9, 2013 - 8:01am

The ACA priorities are mostly focused on decreasing the number of the uninsured and the increasing consumer benefits. Probably the greatest weakness in the current law is the lack of regulation concerning cost containment.

Insurance carriers and big Pharma were brought on board with the idea of their being able to sign up 30 million new consumers. Consumers are at risk for increased costs due to there being more benefits and consumer protections. Insurance carriers are prevented from rejecting people because they have a pre-existing health condition. This is called “guaranteed issue”. This inclusion of consumers previously unable to obtain coverage will translate into high costs for the insurance companies with the resulting concern that they will simply pass this cost on to the larger pool.

While some of the regulations contained in the ACA reflect reasonable limit setting how the insurance carriers will manage these remains to be seen. New rules prevent insurance companies from canceling insurance policies for frivolous reasons (called “rescissions” in industry jargon) and requiring them to include “essential health benefits” in all their insurance plans.

Under another ACA rule, insurers must maintain tight “medical loss ratios.” MLR measures the share of their revenues that are devoted to medical benefits for policyholders. In 2012 insurance companies are required to spend at least 80-85 cents of every dollar on healthcare-not tied to such expenditures as administrative expenses, overhead or advertising.

The decision to establish a firm MLR is one of the better aspects of the ACA. Back in 1993, a time when many more non-profit insurers existed, the average MLR stood at 95 percent, meaning that the typical insurer paid out 95 centers of every dollar the company took in from premiums for the claims of policy holders. In the 20 years since that time, that level dropped to about 80 percent as non-profit insurers disappeared and Wall Street demanded more and more profit taking.

MLR (Medical-loss ratio) is very important to shareholders as it reflects the amount of money paid out in medical claims to premiums collected. Shareholders of health insurance companies look for changes in two measures: earnings per share, a standard measure of profitability at all publicly traded companies, and the MLR, unique to health insurers and always reported as a percentage. An MLR of 90 percent, for example, means the insurer spent 90 cents of every premium dollar on medical care. Since 1993, the average MLR in America has dropped from 95 percent to around 80 percent. By contrast, Medicare has consistently had a ratio greater than 97 percent since 1993.

Although Wall Street constantly pressures companies to reduce their MLRs, this imperative collides with the national standards, as established by the new health care reform law. Insurers are mandated now to spend at least 80 percent of premiums on medical care for the individual and small-group market (one hundred enrollees or fewer) and at least 85 percent for the large-group market. There is evidence that insurers are attempting now to “game” the system by “reclassifying” certain categories of costs than it had previously counted as administrative expenses and move them to the medical-spending side of the equation, effectively raising its ratios without making any actual changes in behavior.

Private health insurers abhor transparency and public accountability regarding claim denials, underwriting rules, payments to doctors and hospitals, death rates, racial or ethnic disparities in health status, or the health outcomes of their members. They are usually allowed to protect this important information as “trade secrets”.

From 2000 to 2008, insurers hiked premiums in employer-sponsored group health plans by 97 percent for families and 90 percent for individuals. At the same time, private-insurance payments to health care providers grew by 72 percent, medical inflation increased only 39 percent, wages only 29 percent, and overall inflation 21 percent. During these years, insurers raised family premiums 2.5 times faster than the rate of medical inflation, 3.3 times faster than that of wages, and 4.6 times faster than that of general inflation.

The lack of affordable, quality coverage has meant that many Americans with medical needs are driven to financial ruin. Medical debt was a key reason for 62 percent of personal bankruptcy filings in 2007. In 2008, there were 1.07 million household bankruptcies. This lack of coverage will contribute to the deaths of about 45,000 people each year, or 123 people every day.

The need for further regulation of insurance carriers operating under the ACA will be a major point of review in the coming years. Otherwise, the “shell game” of how premium monies are collected, administrative costs required, and profit margins will remain unclear.

To help consumers make judgments about health insurance carrier behavior the ACA will require health insurance carriers to, starting in 2014,

Submit to the Exchange, the Secretary of HHS, and the state Insurance Commissioner and publicly disclose the following information:

Claims payment policies and practices

Periodic financial disclosures

Data on enrollment

Data on disenrollment

Data on the number of claims that are denied

Data on rating practices

Information of cost-sharing and payments with respect to any out-of-network coverage

Information on enrollee rights

The new ACA MLR thresholds are already in place and many Americans may have noticed unexpectedly receiving rebate checks in the mail from their health insurance provider. In total, almost 13 million people have received about 1.1 billion from insurers who generated MLRs that fell below the new thresholds.

Next: The Affordable Care Act Part VI: Changes in Medicare

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Cross-posted in Good Reads forum.

[font color=green]This is actually the sixth installment provided by Dr. Carr although the headline in the Lubbock Avalanche-Journal shows Part V. [/font]