By Rick Ungar
Forbes, December 2, 2011
I have long argued that the impact of the Affordable Care Act is not nearly as big of a deal as opponents would have you believe. At the end of the day, the law is – in the main – little more than a successful effort to put an end to some of the more egregious health insurer abuses while creating an environment that should bring more Americans into programs that will give them at least some of the health care coverage they need.
There is, however, one notable exception – and it’s one that should have a long lasting and powerful impact on the future of health care in our country.
That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers’ premium dollars they collect – 85% for large group insurers – on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.
This is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare – but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.
Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid. If they could, we likely would never have seen the extraordinary efforts made by these companies to avoid paying benefits to their customers at the very moment they need it the most.
Today, that bomb goes off.
Today, the Department of Health & Human Services issues the rules of what insurer expenditures will – and will not – qualify as a medical expense for purposes of meeting the requirement.
As it turns out, HHS isn’t screwing around. They actually mean to see to it that the insurance companies spend what they should taking care of their customers.
Here’s an example: For months, health insurance brokers and salespeople have been lobbying to have the commissions they earn for selling an insurer’s program to consumers be included as a ‘medical expense’ for purposes of the rules. HHS has, today, given them the official thumbs down, as well they should have. Selling me a health insurance policy is simply not the same as providing me with the medical care I am entitled to under the policy. Sales is clearly an overhead cost in any business and had HHS included this as a medical cost, it would have signaled that they are not at all serious about enforcing the concept of the medical loss ratio.
So, can private health insurance companies manage to make a profit when they actually have to spend premium receipts taking care of their customers’ health needs as promised?
Not a chance – and they know it. Indeed, we are already seeing the parent companies who own these insurance operations fleeing into other types of investments. They know what we should all know – we are now on an inescapable path to a single-payer system for most Americans and thank goodness for it.
Ungar responds to criticism of this article:
PNHP co-founders David Himmelstein and Steffie Woolhandler respond to Rick Ungar’s “The Bomb Buried in Obamacare…”:
“Limiting overhead to 15%-20% is far from the stringent regulation that Ungar implies. Private insurers’ overhead currently averages about 14% nationwide, and they will probably be able to reclassify some items currently classified as overhead into the patient care expense category (despite regulations that attempt to stop this). Moreover, some current sales expenses will be offloaded to the insurance exchanges, which are likely to have overhead of 3-4%, and the exchanges’ expenses will not count as part of insurers’ overhead. Finally, ACOs will take over many of insurers’ administrative tasks and expenses, but these ACO overhead expenditures will not count toward the 15%-20% overhead limit. In sum, total insurance overhead (and profit) is likely to grow, not fall in the years ahead.”
By Don McCanne, MD
Never have we received as many requests to comment on an article as we have on Rick Ungar’s “The Bomb Buried in Obamacare…” He is to be highly commended for his enthusiastic support of single payer, but his analysis that the insurers’ requirement to comply with the statutory medical loss ratios is an Obamacare bomb that will cause so much damage that we’ll be on an inescapable path to single payer might represent… well, perhaps a touch of hyperbole, intended or not.
In the response above, David Himmelstein and Steffie Woolhandler explain how the medical loss ratio will have very little impact on reducing total insurance overhead and profit, although some recategorization will likely take place. Thus it isn’t quite the bomb that will relieve us of their excesses and intrusions, nor relieve the health care providers of the administrative burdens that are placed upon them by the insurers and by the general complexity of our fragmented, dysfunctional health care financing system.
That said, it is political season. We can thank Rick Ungar for providing us with well-meaning hyperbole that that is appropriately provocative and makes people want to look once again at single payer as an answer to our health care mess. As Ungar says, “we are now on an inescapable path to a single-payer system for most Americans and thank goodness for it,” even if the medical loss ratio bomb won’t really budge us in that direction.
Although PNHP will remain meticulous with the facts, upholding our reputation as a highly credible resource on single payer reform, it would be great if Rick Ungar and many others would continue with passionate pro-single payer advocacy, though perhaps fine tuning the hyperbole in order to ensure credibility.