The Austin American Statesman is reporting the Department of Health and Human Services has denied Texas a waiver to phase in the so-called medical loss ratio rule under the health care reform law.
What is the medical loss ratio rule?
According to Health Affairs, the medical loss ratio requires health insurance companies pay 80 percent of their premiums to provide health care services to its customers, after subtracting taxes and regulatory fees. That would leave 20 percent of premiums to cover expenses and a profit margin. If health insurance companies fail to adhere to this rule, they will be required to pay rebates to their customers.
What was the nature of the waiver Texas sought?
Texas wanted to phase in the medical loss ratio over several years rather than to have it imposed all at once. The ratio would have been 71/29 percent for 2011 rising to 80/20 percent by 2014. Texas claimed that had the rule been in effect in 2010, total required rebates would have been $158 million, wiping out almost all underwriting profits for the health insurance industry in Texas. If the rule is implemented immediately, 11 out of 26 health insurance firms will likely have to stop writing health insurance policies altogether. DHHS claimed that most Texas health insurance firms already adhere to the medical loss ratio rule and that fears of firms leaving the Texas health insurance market are overblown.
What is the criticism of the medical loss ratio rule?
A recent article in Bloomberg suggests the medical loss ratio rule will have the perverse effect of increasing insurance premiums. The rule would dissuade insurance companies from spending money on anti-fraud, anti-waste, and customer service as these are considered administrative costs for the purposes of the rule. Insurance companies will have an incentive to boost premiums to try to improve their ratio and thus avoid having to pay the rebate. The rule would also hurt high deductable, low cost plans because it only counts money paid by the insurance companies to cover health care expenses and not money paid by consumers to cover the deductable. Thus competition in the private insurance market is decreased, not increased.
What do supporters of the rule say?
The Center for Public Policy Priorities, which opposed the Texas waiver, maintains that the medical loss ratio is an important consumer protection. It will force insurance companies to provide better value to customers. It opposed the waiver because it would redirect hundreds of millions of dollars to insurance companies that should go to consumers in the form of rebates under the health reform law.
What comes next?
According to the Fort Worth Star-Telegram, Texas health insurance companies will have to start paying rebates to their customers based on 2011 premiums in August. That is, of course, provided that the Supreme Court does not throw out the health reform law entirely on constitutional grounds under a lawsuit brought by a number of states attorneys generals, including that of Texas.
Texas resident Mark Whittington writes about state issues for the Yahoo! Contributor Network
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