Triggers, Medical Loss Ratios and Sec 116
by Bruce Webb, Thu Sep 03, 2009 at 11:01:39 AM EDT
One thing up front. I know insurance companies are evil, I know that chances are good that Rahm is fully intent on selling us out and that Reid seems to be an active enabler of Baucus's obstructionism. I even have some harsh thoughts about Obama. So consider all that said. Further my goal is Single Payer, and that I believe that getting there requires a strong Public Option. Okay so that's all good.
That being said the Trigger proposal is not NECESSARILY a totally unacceptable outcome. Understanding why requires a certain amount of dispassionate analysis of how a trigger would interact with the bills that we have and particularly with the cost control measures of Sec 116.
Policy wonks invited to follow me to the Extended Entry.
The key concept to understand is that of the 'Medical Loss Ratio'. In simplest terms it is the ratio of care paid by your insurer to an actual medical care provider as a percentage of dollars collected from the insuree. The difference between the two represents the administrative and marketing costs of the insurer, plus of course the profits. In the not too distant past this ratio was typically around 95%, now it is 80% and insurers are pushing to get it lower. Note that this number actually should move higher as the actual care of cost increases and not lower. That insurance companies are not taking four times what they used to take from your premium dollar is not because MRIs cost more, that number would move the percentage the other way, all things being equal.
HR3200's primary method of establishing premium controls is set forth in Sec 116.
SEC. 116. ENSURING VALUE AND LOWER PREMIUMS.Translation: you can't make money by cherry picking the risk pool in a way that you only cover people who are not likely to make claims. You have to have a set ratio of minimum payout or you have to rebate the difference.
(a) IN GENERAL.--A qualified health benefits plan shall meet a medical loss ratio as defined by the Commissioner. For any plan year in which the qualified health benefits plan does not meet such medical loss ratio, QHBP offering entity shall provide in a manner specified by the Commissioner for rebates to enrollees of payment sufficient to meet such loss ratio.
(b) BUILDING ON INTERIM RULES.--In implementing subsection (a), the Commissioner shall build on the definition and methodology developed by the Secretary of Health and Human Services under the amendments made by section 161 for determining how to calculate the medical loss ratio. Such methodology shall be set at the highest level medical loss ratio possible that is designed to ensure adequate participation by QHBP offering entities, competition in the health insurance market in and out of the Health Insurance Exchange, and value for consumers so that their premiums are used for services.
Which is a pretty elegant solution and one hard to game. Both the amount of premiums collected and the dollars expended are well known and 'medical loss ratio' is already an industry standard number.
If we look at sub-section (b) we see that for every given area, plans that want to participate in the Exchange will have to meet a pre-set Medical Loss Ratio, one that is set just as low as needed to create an adequate market. It is in effect an auction with companies having to compete on the basis of their MLR with the higher the ratio the more likely they would be to make the cut.
If a strong Public Option is part of the mix this process is pretty easy, its MLR is more or less the benchmark and private companies can't depart too far from it without losing market share. Without the PO it is more tricky but still workable. (In PRINCIPLE-I know the insurance companies are gamers). Under this model the Trigger would be a set MLR, say of 85%. Assume that the initial MLR for a given area is 95%. Further assume (and this is a sure bet) that each year that the private insurers will come crying that they can't possibly survive on this margin. You can even assume a certain level of agency capture that would allow the MLR to be steadily lowered over time. But the Trigger sets the lower bound.
The combination of a MLR set for each area under the provisions of Sec 116 and a Trigger mechanism would work to keep insurance companies honest and competing on price. ON PAPER. It would require that the initial set-point for the Trigger is not so low as to give the privates unlimited gaming room and/or it requires the Health Choices Administrator to maintain a hard line on the initial establishment of that MLR for each Exchange. But it could be done.
Compromising on a Trigger is a terrible idea if your goal is Single Payer, at best it delays the process. But it is not an inherently crazy, evil idea simply designed to deliver us all to the wolves of the insurance industry, the House Bill at least is strong enough to work even if we were forced to given up the PO over the short run.