Yesterday, HHS released the official new medical loss ratio guidelines, which will go into effect on January 1, 2011. From that point on, insurers will have to spend at least 80% of premiums collected on medical care, and that requirement rises to 85% for employer group plans that cover at least 50 insureds.
There’s no doubt that the new MLR rules will push health insurance carrier to be more innovative and efficient in terms of administrative costs, and I have no doubt that most of the major carriers will adapt to the new rules relatively seamlessly. Whether or not smaller or less-stable carriers will be able to do so remains to be seen, and there may be some negative market consequences in some areas as a result. But hopefully as time goes by, most carriers will be able to continue to provide quality coverage to their insureds while meeting the new MLR rules.
While I agree that profits and administrative costs should be kept to a minimum in order to keep health insurance affordable and provide value to insureds, it’s disconcerting that health insurance carriers were singled out in the PPACA in terms of rules to cap profits and administrative costs. Pharmaceutical companies make far more in profits than health insurance carriers do. There’s no limit on how much specialists can earn, or how much medical devices can cost. Of course, health insurance carriers (most notably Medicare) can set reimbursement limits, but the cost of care still continues to climb every year.
Public perception of health insurance carrier profits tends to be a bit off base. In addition, people tend to be very aware of how much their health insurance premiums are increasing, but not nearly as aware of how much the actual cost of their medical care is increasing, since the expenses are mostly paid by their health insurance carrier (which is why the premiums continue to rise). Perhaps a more efficient reform law would have also attempted to place similar profit/admin caps on all of the industries that make up the US healthcare system. Time will tell, but it seems that as long as doctors, hospitals, medical device makers, and pharmaceutical companies are exempt from any rules concerning profits and administrative costs, the MLR rules might not have much long term impact on the actual cost of health insurance. Premiums will keep rising (at a pace similar to what we’ve seen over the last several years) as long as the cost of healthcare continues to climb at the same rate it has for the last decade or so.
