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Does Obamacare Limit Profits for Health Insurance Companies in Your State?

One of the provisions in the Patient Protection and Affordable Care Act (a.k.a ACA, a.k.a. Health Reform, a.k.a. Obamacare) is that it limits the profits of health insurance companies. The ACA imposes a minimum medical loss ratio (MLR) on all insurers. The MLR is the amount of money spent on covered person medical care divided by the total revenue received through premiums. There is some debate of what constitutes ‘medical care’ (e.g., do investments in electronic health records count as medical care?), but insurer profits certainly are non-medical.

The ACA requires health insurers in the individual and small group market to spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs. The corresponding figure for large groups is 85 percent. According to a recent Kaiser tracking poll, 60 percent of the public views the MLR concept favorably, although only 38 percent was aware that the provision is in the ACA. Insurance brokers may be getting squeezed for insurers to meet this amount.

Even though the MLR is a national law, it may not apply in your state.
Why? Because many States are petitioning for a waiver. HHS is currently reviewing applications from six states: Florida, Kansas, Michigan, Texas, Oklahoma and North Carolina. According to The National Association of State Budget Officers, HHS has granted waivers to seven states: Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia and Wisconsin. The department has denied them to Delaware and North Dakota.

Why did these States receive waivers? For a variety of reasons, but one of the reasons is due to the fact that some states have a less competitive medical market. Maine, for instance, requested a MLR of 65%. The reason was that State only has two large commercial insurers, Anthem Blue Cross Blue Shield (with 49% of the market) and MEGA Life and Health Insurance Company (with 33% of the market). A public-private partnership, DirigoChoice, makes up most of the rest of the market. Three HMO’s have less than 1% of the market combined between them. To avoid the case where a large insurer would leave the market due to minimum MLR requirements and create a near monopoly, HHS decided to approve Maine’s request.

Notes:

Section 2718 of the Public Health Services Act implements the minimum medical loss ratio requirement.
The National Association of State Budget Officers

Jason Shafrin is a Ph.D. Economist and Research Associate at Acumen, LLC. His research interests include all issues related to healthcare policy and economics, the health insurance market, and Medicare research. Shafrin is also founder of the blog Healthcare Economist, where this post was originally found.

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travelsoha
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travelsoha

Section 2718 of the Public Health Services Act implements the minimum medical loss ratio requirement.

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Yugnamuh
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Hey Jeff, Insurance rates – cost of paying for customer treatment = profit for insurance companies Claims being handled correctly and people getting treatment aren’t the only factors… what those people have to pay for that service is also a factor. When a public healthcare company needs to make more profit than last year or last quarter their options are to cut the cost of paying for customer treatment or charge more. They have been doing both for decades now. The AFA made it harder for them to cut costs by adding consumer protections. They can’t drop people for costing… Read more »

Eric
Member

Are Insurance companies taking advantage of this limit by increasing premiums, while negotiating a less aggressive discount with healthcare providers? By increasing their payouts to providers, and increasing premiums, they can collect higher profits!! This will help eliminate competition as smaller insurance companies will not be able to pay out as much to providers. Insurance companies will also be able to raise rates by “blaming Obamacare” and small-medium sized businesses will just eat it up as most of them are Republicans. Also, since having insurance is now a government requirement, new customers will have no choice but to pay this… Read more »

Jeff
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I don’t think there should be a specific limit to profits as long as claims are handled correctly and people get the treatment they are entitled to.

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disabooo
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disabooo

I appreciate the time that the welfare bashing group took to make the comments. I respect your comments and respectfully agree with some of it.

However, what I’m asking is – who can respond to my questions? (A real, accountable person).

MirandaRiv
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MirandaRiv

About freaking time laws like this exist. From what I understand the law states, my insurance company now has to spend between 65 and 85% (varies between states and size of the company) on health care for me. Which is great because then maybe I will actually get what I paid for, health care. For the past 2 years I have had insurance through my employer. I had my pay docked $1.15 a hour and I was paying $120 a month out of my checks. Work 40 hours a week that works about to be about $300 a month. So… Read more »

Nate Ogden
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Nate Ogden

your problems are much deeper then insurance. Majority of that $7000 went to pay for people who had $1,000,000 claims. That is why they call it insurance, its not meant to pay little claims you know are going to happen, its meant to pay large bills you couldn’t afford. The second claim was probably not paid due to something you did wrong, safe bet after reading your post. Pre-ex never went back 5-10 years. it use to apply for 12 months. Pre-ex really only existed in the individual market where people would wait until they were sick then buy insurance.… Read more »

Barry Carol
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Barry Carol

In talking about public housing decades ago, I once heard a Congressman, whose name I’ve long since forgotten, comment that you can’t take the people out of the slums until you take the slums out of the people. Unless and until you do that, public housing is likely to fail as a strategy to improve the living conditions of the poor. Personal responsibility is important and shouldn’t be underestimated. While liberals like to claim the moral high ground around compassion for the less fortunate, fairness and social justice, they never squarely face how much their ideas will cost to implement… Read more »

steve
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steve

May I suggest you read the actual stats on education over the last 35 years?

http://nces.ed.gov/pubs2011/2011012.pdf

While our national numbers are improving, we could do better. I would agree that we have been guilty of throwing money at problems. We should study what has been successful elsewhere and try to adopt/adapt what we can. I think the literature suggests we need more emphasis on early education. Without that, money spent later is not as well spent.

Steve

AC Points
Guest
AC Points

“While employees premiums and OOP might increase seldom does their % of total cost.”

Right. Our company insurance costs have continued to increase. Just not as much as if we had stayed with the more comprehensive plans. Everyone gets to share the pain.

AC Points
Guest
AC Points

I guess one thing to be clear on is whether you’re talking about profit per policy or just overall profit. I can’t even speak for my state, but I can relay experience with our individual carrier. This is a small group plan purchased through an industry organization. The premium increase we got for 2011 was at the high end of the range of increases percentage wise we have received in the 8 years of our company. (Note this was not all with the same carrier.) Per our carrier’s 2012 rate request filings with the state, their 2011 profits were much… Read more »

Nate Ogden
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Nate Ogden

“we were forced to start doing a couple years before ACA, and that is shift more of the expense to the employee in terms of higher deductibles and higher out of pocket.”

While employees premiums and OOP might increase seldom does their % of total cost. Historically employees contribution to total cost has continued to decline, one of the reasons wages have stayed flat.

Barry Carol
Guest
Barry Carol

“In the medium and long term term (2015 onward) it has no impact on margins, because competitive pressures keep the industry about where it is today, even though the MLR/AER ratio keeps getting better.” Jonathan H. – I agree. This is exactly why I said I thought the minimum MLR rule is a dumb idea. It will have no long term impact to speak of on the industry’s profitability. In the meantime, there will be compliance costs, the need to calculate rebates, if any, and mail checks and the state regulators will have to spend time, effort, and money to… Read more »

disaboo
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disaboo

Sorry, I don’t care about more profits for the health insurance. Is there somewhere that I can ask for more legal information on how we (the 99%) can get more information on the horrendous poverty trend that has been caused by the insurance company?

Nate Ogden
Guest
Nate Ogden

the poverty trend is caused by stupidty of the 30%, your not part of the 99%. The 30% that have no skills, can barely read, and aren’t worth $3.00 per hour let alone $7.50, or the local minimum wage, are mad becuase they aren’t given handouts at the level they feel they should be. Instead of getting some skills and earning their money; they want to camp out, do drugs, and rape runaways. As long as this 30% fails to contribute to society in any meaningful way their poverty will continue. When the 70% gets feed up with your parasitic… Read more »

David Ihnen
Guest

Complete mischaracterization. A healthy person doesn’t want to do anything but feel loved and valuable just like anybody else. If you disenfranchise them, deprive them, thus making their life a living hell by not providing the basics of life, education and role models, what do you think their best options are? It ends up involving escape through entertainment, alcohol, drugs, and attempting to validate some small quantity of power and control in the world through violence. If you find that behavior undesirable, the only destined to success strategy is to give them better things to do. Its not that they… Read more »

Nate Ogden
Guest
Nate Ogden

“If you find that behavior undesirable, the only destined to success strategy is to give them better things to do.”

If you spoil a child you end up with a spoiled child not a well behaved socially engaged and productive member of society. Its not the job of society to entertain and engage individuals. That has never worked in the history of mankind.

David Ihnen
Guest

Engaging individuals is what works, period. Whether or not you consider it the job of society – or the local community – or just the parents – it is the only thing that has ever worked. If you don’t teach people to be engaged, you get sociopathic and destructive behavior within those disengaged, indeed, you create a lower class of disenfranchised people. If you think society should have policies that minimize sociopathic and destructive behavior, then you think society should engage people and aren’t disagreeing with me. You’ll help them have the basics and education and everything you can to… Read more »

Nate Ogden
Guest
Nate Ogden

lets discuss details, the place this ideology always dies. Who determins what level of engagement an individual should have and who should pay for this? I recently read an article about the chronic unemployement of European youth. One of these individuals wanted to be an artist and go to some art school in Italy. Are you saying if we don’t send this individual to art school in Italy they will be disengaged and it will be our fault? Who is suppose to pay to send this individual to Italy? How long are they allowed to study art before they are… Read more »

David Ihnen
Guest

First of all, ideology doesn’t have to know the answer to all the details, ideology is a direction to go in, something to strive for. a statement of principles on which to hash and work out a plan for action. What level of engagement? Whatever level suits the purpose of society. If society does it because its cheaper than dealing with crime, then raising people to the level of engagement with society such that petty crime is not a logical option is the level. It directly follows out of the profit, or compassion, of society at large. What do we… Read more »

Nate Ogden
Guest
Nate Ogden

“You’re falling into the same trap all conservatives do, equating a past failure of government as a reason to stop trying entirely.” Communism/Socialism has never worked and will never work no matter how many times you try it. To keep repeating the same failed ideology is pointless. Holding people accountable for themselves is not doing nothing. Its a proven system for the sustainment of society. Your failure is rooted in the fact your model always starts with doing something. If your not open to the possiblity that doing nothing might be the optimal answer your guaranteeing failue. We see this… Read more »

David Ihnen
Guest

“Communism/Socialism has never worked and will never work no matter how many times you try it. To keep repeating the same failed ideology is pointless.” You assume the ideology is flawed. Its not. Its the implementation that have been flawed. Ask any scientist or engineer: “What do you do when you find several ways to try and do something that don’t work?” A clue: the answer isn’t ‘stop trying’. ” If your not open to the possiblity that doing nothing might be the optimal answer your guaranteeing failue.” Hindsight is 20/15 vision, the man saying ‘see, I told you so’… Read more »

Nate Ogden
Guest
Nate Ogden

What country do you live in? Your obviously not here in the US. “Is an unregulated slum better than a housing project? The former is ‘doing nothing’, the latter is doing something. At least the latter is built by engineers and is more or less sanitary.” We don’t have unregulated slums in America. Our poor live better then the middle class in most of the rest of the world. Taking an apartment building and calling it section 8 doesn’t mean its more sanitary then before HUD bought it. The living conditions of the poor were better prior to moving into… Read more »

David Ihnen
Guest

“What country do you live in? Your obviously not here in the US.” I live in the USA. Your unwillingness to see what is around you does not make it go away. “We don’t have unregulated slums in America. ” Then you’re doing something, aren’t you, even if all you’re doing is giving people money. Don’t you think we should KEEP DOING SOMETHING? Why are you advocating doing nothing? “the worst slums in the country are public run housing. ” Cornering the market on slums doesn’t make the problem go away. Paying capital holders to rent their property to people… Read more »

steve
Guest
steve

30% of people want to do drugs and rape people? Do you have a citation for this? Personal experience?

Steve