Monday, December 05, 2011

MLR is Stupid

Obamneycrap has decided to treat the health insurance industry as a regulated monopoly. There are inherent problems in that approach.

The federal government has no direct authority to regulate insurance. That duty was deferred to the state under the McCarran-Ferguson Act of 1945.

Perhaps the same folks that never bothered to read the Constitution, or the law they passed known not so affectionately as Obamacare, either never read McCarron-Ferguson or chose to ignore it.

The second problem, as if issue number one isn't enough, is insurance is marketed in a competitive environment. In spite of comments otherwise, most insurance products (and certainly health insurance) do not operate as a monopoly.

Which brings us to the MLR debate. The federal government has decided it is within their purview to dictate policy benefits, premiums, who must be covered, the conditions under which a policy must be issued and also have decided what is an appropriate payout formula for claims.

MLR requires carriers that write fully insured group health insurance plans to reserve no more than 15% of premiums for administration and overhead.

Carriers that write individual major med may use no more than 20% of premiums for administration and overhead.

In other words, the medical loss ratio for fully insured group health must be no less than 85% and for individual major medical, no less than 80%.

Sounds fine to some but there is a flaw, especially when you consider carriers operate in a free market. If their price is too high they will not write new business and may well lose existing business.

If it is too low they may find themselves losing money which usually means an over-correction the other way moving them to the non-competitive side of the fence.

Some of the Congress critters have pointed to areas where a carrier (usually Blue Cross) have captured 60% or more of the market. Their view is, the carrier is unfairly controlling the market and effectively eliminating competition.

OK, let's play along with that for a moment in light of MLR.

Say HHS decides to investigate the carrier and wants to audit their books to see if they are adhering to MLR. Upon doing so, they learn the carrier's MLR for fully insured group health is 75% instead of the mandated 85% figure.

Will HHS then tell the carrier to lower their rates to come into compliance with the 85% rule? If the carrier does so will not that make them even more competitive, leading to an even more market domination.

But what if the audit shows the carrier has an MLR of 90%? Will they make them raise their rates?

I doubt it.

Basically in addition to being stupid, MLR punishes the competition if a carrier tries to pull a fast one and retain more premium dollars for themselves but also punishes those who are efficient.

There is a word for that.
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