Senator Max Baucus recently admitted that he never read the new health care law. But that hasn’t stopped him from trying to re-write it after the fact, in a way that would drive more health plans from the market and give consumers less choice.
The new law reduces choice of health plans by giving government the power to control the Medical Loss Ratio (MLR) — the amount of dollars an insurer spends on medical care divided by the total premiums. Policies that cover large businesses will have to achieve an MLR of 85 percent, while those for small businesses and individuals will have to achieve an MLR of 80 percent. This sounds simple but leaves many issues unresolved.
Calculating he MLR can be quite complicated — especially when the government gets involved. Suppose, for example, an insurer invests in information technology that it gives to patients or providers in its network in order to improve co-ordination of care. Is that a medical cost?
Furthermore, the MLR regulation is deadly for increasingly popular consumer-directed plans. Suppose a traditional policy costs $4,000 and spends $3,400 on patient care, for an MLR of 85.00. With the consumer-directed policy, the patient controls $800 more of the medical spending than with the traditional policy, through a higher deductible, and his premium goes down by $800. In this case the MLR goes down to 81.25 ($2,600/$3,200). There is no real difference, but the new regulation could require insurers to rebate $120 — the amount by which the ratio falls short of the required MLR. (In real life, the consumer-directed plan would have lower total costs than in this simple arithmetical example, because cutting out the middleman and giving more health dollars to patients to control themselves motivates them to get better value for money.)
