You’re losing me

The Medical Loss Ratio (MLR) is a simple ratio.  It is the sum of money spent on claims by an insurance company plus the sum of money spent on a few quality improvement and medical management programs divided by the sum of money collected as premiums.  Under Obamacare, large groups are required to have an MLR of at least 85%.  Small groups and individual policies as a pool have to have an MLR of at least 80%.  If the MLR is below these thresholds, the insurance companies must send rebates.  The MLR is calculated over the course of a year as January tends to have lower claims pay-outs than November because more people are still paying deductible in January than November.  

Before Obamacare, there was no national MLR requirement.  Insurance companies could pay out as much or as little as they could get away with.  States could regulate MLRs and the regulated MLRs were often 50% to 80% of premium dollars had to go to actually pay claims. 

Business Week in 2008 highlighted an egregious example (h/t PNHP)

In several cases where BusinessWeek was able to obtain benefits ratios from colleges or universities, the percentage was well below 70%.

At Palm Beach Community College, the benefits ratio for the spring semester of 2008 was 42.6%, according to reports provided to the school by UnitedHealthcare.

In previous semesters the benefits ratios dipped as low as 10.2% and 13.8%. This means the college’s plan has been a veritable gold mine for UnitedHealthcare. At the University of South Florida in Tampa, which offers a plan from American Fidelity Assurance, the ratio this academic year is 35%, down from 71% and 61% the previous two years, respectively.

So what is the change? 

The requirement under Obamacare is that health insurance companies must actually spend a very large proportion of their premium dollars on actually paying claims for healthcare.  No state had stricter requirements for MLR than Obamacare.  This is a consumer protection piece.  Junk insurance and more importantly half decent benefit packages that are overpriced is no longer practical to sell.

 As a practical matter, most of the integrated payer-providers, co-ops and larger non-profits tended to be close to regulated MLR levels in 2012.  The big difference has been moving the for-profits pay-out rates much higher.  It is changing the business model from looking for reasons post-facto to deny claims towards better medical management and efficiency as there is no longer an ability for a company to spend 30% of revenues on bureaucrats looking to say no. 

Let’s take an example.  Let’s imagine that  Mayhew Insurance is in the large group market.  There are 40,000 members in the large group market and we charge  an average of $500 per member per month (all numbers are hypothetical and used only for illustration and easy math).  That means Mayhew Insurance collects $20 million in premiums per month.  Pre-PPACA, we might only pay, on average $15 million dollars in claims per month.  That would be an MLR of 75%. 25% of the premiums would go to interest expenses, profit, salaries, rent, hookers and blow.   Quite a few people have jobs where their mission is to say no for comparatively specious reasons. 

Under PPACA, for the same premium pool, we either have to pay out $17 million or more in claims per month, reduce premiums to $17.65 million dollars per month or still collect $20 million in premiums but send out $2.35 million dollars in MLR rebates per month.    It is cheaper to increase the pay-out than send out rebates.  Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered.

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72 replies
  1. 1
    dmsilev says:

    25% of the premiums would go to interest expenses, profit, salaries, rent, hookers and blow.

    Tax deductible as a business expense, I assume?

  2. 2
    low-tech cyclist says:

    Sounds like this takes health insurance companies about halfway to being a regulated utility.

    I’m all for that, by the way.

  3. 3
    Schlemizel says:

    A minor quibble – that gold plated fountain would not be in the lobby, it would be in the foyer of the CEOs Aspen house. But even more likely it would be in the form of an NHL franchise playing in a taxpayer funded arena in St. Paul, MN.

  4. 4
    Snarki, child of Loki says:

    Surely the “hookers” part of “hookers and blow” can be considered part of the “employee wellness program”, amirite?

  5. 5
    Wag says:

    This is the best explanation of MLR that I’ve read anywhere. Thanks very much.

    It might be a helpful comparison for the juicers to know the Medicare MLR . As I recall, the MC MLR is around 96%. Oh those expense and pesky Federal government bureaucrats who suck at the taxpayer’s teat!

  6. 6
    SP says:

    “Quite a few people have jobs where their mission is to say no for comparatively specious reasons.”
    And now they won’t be able to do that job. Job-killing Obamacare!

  7. 7
    Jack the Second says:

    My impression is also that 20, 30 years ago, many private insurance companies had a MLR in the 90’s.

  8. 8
    Schlemizel says:

    @Jack the Second:
    I know at one time BCBS of MN was in that range. I believe they are still technically a non-profit but I have no idea what their MLR is. That should be something every company should have to divulge with their rates.

  9. 9
    MomSense says:

    Richard, thanks for this explanation! This is one of the provisions that is most misunderstood when trying to explain how the ACA works. I will be sharing this link with lots of people!

  10. 10
    aimai says:

    Mayhew Insurance can move some of the specious No’s to quality improvement and medical management roles, but the plan to have a gold-plated fountain in the lobby has been reconsidered.

    So by this you mean that the actual stuff that can be funded with the premiums has also been sharply limited? On the one hand the driver of the MLR is the actual payouts–payout more and you have to rebate less or restructure less. Payout less and you have to rebate or restructure the very premium. But choosing to spend more on “stuff” for the insurance company, jobs for the insurance company, pay for the insurance company simply doesn’t factor in. The company has to squeeze its profits out of the same 20 percent of premiums paid but the premiums paid can’t be artificially inflated over actual payouts to actual medical providers?

    Thank you so much for explaining this , Richard. I can’t tell you how often this comes up at DailyKos, at least in the threads I read occasionally. And its damned hard to explain.

  11. 11
    Mudge says:

    Interesting that the two examples cited are from Florida. It is only fitting those MLRs are from the state of Gov. Rick Scott, health care fraud expert.

  12. 12
    NorthLeft12 says:

    I am sure the rabid RightwingNutJobs/Libertarians will be complaining about government interference in a normal business transaction between an individual and an organization.

    They always seem to be defending the right of consumers to be fleeced by unscrupulous corporations.

  13. 13
    flukebucket says:

    but the plan to have a gold-plated fountain in the lobby has been reconsidered

    And this will absolutely destroy the gold-plated lobby fountain industry

  14. 14
    rikyrah says:

    Conservative groups push against solar energy

    Rachel Maddow talks with Dorothy Barnett, Executive Director of the Climate and Energy Project, about the push by conservative allies against solar and other renewable energy in Oklahoma. (Americans for Prosperity statement: http://on.msnbc.com/1jtcp6a)

    http://on.msnbc.com/1eYoQeG

  15. 15

    Hi Richard, thanks for this. Is the term “medical loss rate” itself problematic, since “losses” are something businesspeople are strongly conditioned to minimize? Shouldn’t it be renamed something like “Medical Investment Rate”?

  16. 16
    RSR says:

    @Hillary Rettig: ha, I said/asked the same many moons ago.

    In other insurance markets it makes sense, as a house burning down or a car totaled in an accident is indeed a loss.

    I agree medical care shouldn’t be called a loss, .

  17. 17
    aimai says:

    @Hillary Rettig: Agreed! But all the terminology is, perhaps purposely, quite confusing.

  18. 18
    RSR says:

    Does the MLR requirement apply to the entire insurance market? It’s not just for O’care plans, right?

  19. 19
    Gin & Tonic says:

    @Hillary Rettig: Having spent part of my career in insurance, “loss ratio” is a standard term of art in insurance accounting/statistics/actuarial work.

  20. 20
    Capri says:

    IMHO, this was the most important thing in the law. I was very surprised it didn’t get more attention and push-back when the law was being debated.

  21. 21
    boatboy_srq says:

    @Snarki, child of Loki: And move the “blow” part to prescription medication and you increase the claims payouts as a bonus.

    /snark

    @NorthLeft12: The Paulbot brand of WRNJ-Libtardism defends, not the right of every consumer to be fleeced, but the right of every producer to do the fleecing. Brilliant economics for an agrarian economy where all business is small and everyone has something to sell. In a postmodern post-industrial model, though, not so much. Makes you wonder what the world would look like if Rand (Ayn, that is) had preceded Marx instead of the other way around.

  22. 22
    Yatsuno says:

    @boatboy_srq: Libertarianism cannot exist without the hard structural choices made from previous systems. Libertarians are parasites on the hard work of progressives and yes even Communists. Progressives balance out the economic system of the world, libertarians just seek to exploit those gains for their own selfish ends. But Ayn would have been laughed into obscurity if she had written her dreck before Marx had. Plus no speedy trains to base her science fiction on.

    (edited for clarity)

  23. 23
    Eric S. says:

    Under PPACA, for the same premium pool, we either have to pay out $17 million or more in claims per month…

    I have and continue to support the MLR but reading this sentence an idea flashed through my head that this could open up a way to game the system and/or drive up medical costs. I’m not saying it will but that was what jumped to mind.

  24. 24
    Downpuppy says:

    Massachusetts has a 90% MLR minimum in the individual & small group market.

  25. 25
    MomSense says:

    @RSR:

    I think people have been receiving rebates for two years now–so I would guess yes.

  26. 26
    Lurking Canadian says:

    No mention of the buying mandate should have ever been made without mentioning the higher medical loss rate in the same sentence. I think it is among the most important things the ACA does, and it’s the perfect counter to the “Obama’s making us funnel money to the fat cats!” argument.

  27. 27
    Belafon says:

    @Gin & Tonic: Like “warming” in science, I’m assuming “loss” has a very specific meaning in insurance, not the more general meaning in use. Do you remember what it meant?

  28. 28
    boatboy_srq says:

    @Yatsuno: There’s just so much isolationism, frontier-era self-determination, Manifest Destiny-esque exceptionalism and other “things were so much better in my pappy’s day” revisionist history baked into the model it’s sometimes hard to break it free and examine it on its own ugly terms.

    And I HAD thought Ayn had been laughed into relative obscurity until the two Pauls made her fashionable again – especially to the “just-because-I-get-a-paycheck-funded-by-public-sector-funds-doesn’t-make-me-a-parasite-like-THOSE-people” crowd.

  29. 29
    Belafon says:

    @Eric S.: That’s why you need competition, which is what the exchanges are for.

  30. 30
    George says:

    Are there any restrictions on executive compensation rates included in figuring the MLR?

  31. 31
    Gin & Tonic says:

    @Belafon: A “loss” was a claim paid to an insured. The expenses associated with that (adjusters, appraisers, etc.) are “loss expenses.” The amount a company was required to hold in anticipation of claims made are “loss reserves.” Decades ago I think reserving requirements were more stringent, but the idea is based really on the nature of insurance, where the customer pays their premium well in advance of the expense the company incurs. In a higher-yield investment environment than generally prevails today, a company could be profitable even if their loss ratio were negative, due to the time value of money and the elapsed time between when you pay the premium and make your claim.

    But my experience was in property/casualty, which is in many ways different from life/health.

  32. 32
    aimai says:

    @Lurking Canadian: Well, there’s just no silver bullet for any of this stuff. The objections to the mandate were transparently bogus and arose simply because it had been passed. Prior to its being passed no one thought there was anything odd about it. It was obvious that everyone needs to be in the pool for any insurance scheme to work. But once it had been made a point of contention no single counter point would have worked–we know that because no single counterobjection did work. We spent years arguing with right wingers and trying to show them why the mandate was necessary and why other parts of the system balanced it out and it hasn’t made a dent. Thats because you can’t explain something to someone when their livlihood or their world view depends on their ignoring you.

  33. 33
    Richard Mayhew says:

    @George: No restrictions on how a company uses the 15% (large group) or 20%(small and individual groups) that is not dedicated to paying claims. Some companies will be top-heavy and can’t figure out why they lose all of their good plumbers/technicians as soon as they have experience, and other companies will have an amazingly deep reservoir of tacit knowledge.

  34. 34
    Rob in CT says:

    According to wikipedia, in 2007 the industry average was 81%, btw. The PPACA set the new floor at the level of the old average. Definitely a win for the public, that.

    Googling around, it looks like property casualty insurance (my line ‘o work) hangs out around 60%.

    There may be more fluctuation in P&C, given Cat losses, but I’m not an actuary so I really don’t have a sense for how this compares to medical insurance. It’s also possible that operating expenses are much higher, given that a P&C company has lots of claims folks who go out and check out damaged cars, houses, etc. This seems to be accounted for under “underwriting expenses” (which also includes a bunch of other operating costs) and when you include that, the net loss ratio climbs into the 90-100% range (and in bad years, over 100). Much of the industry’s profit actually comes from investing reserves.

  35. 35
    Richard Mayhew says:

    @Rob in CT:

    Much of the industry’s profit actually comes from investing reserves.

    Some days working for an insurance company is no different than working for a hedge fund with a strange cash flow model.

  36. 36
    mtiffany says:

    Under PPACA, for the same premium pool, we either have to pay out $17 million or more in claims per month, reduce premiums to $17.65 million dollars per month or still collect $20 million in premiums but send out $2.35 million dollars in MLR rebates per month.

    Just out of curiosity, does the PPACA explicitly mandate how the rebates are to be paid? Can the insurerer simply apply the rebate as a credit against future premiums without lowering the premiums? Or do they have to send a rebate check?

  37. 37
    Mnemosyne says:

    @Jack the Second:

    My impression is also that 20, 30 years ago, many private insurance companies had a MLR in the 90′s.

    Twenty or thirty years ago, most private insurance companies were nonprofits. Now the majority of them are for-profit. That’s really what the big change is — even most of the Blue Cross outfits are now for-profit.

    @RSR:

    Does the MLR requirement apply to the entire insurance market? It’s not just for O’care plans, right?

    Thanks to the ACA, you can’t sell an insurance plan that doesn’t conform to its provisions even if it’s not on the exchanges or is company-sponsored insurance. IOW, it’s Obamacare all the way down now — every health insurance plan is “Obamacare,” even the one I get through my job at the Giant Evil Corporation.

    (The MLR difference on a company plan is that any rebate checks go to the company, not to the individual insured employees.)

  38. 38
    Mnemosyne says:

    @mtiffany:

    As I understand it, it has to be cash money. Though, as I said above, if you’re on an employer-sponsored plan, the company gets the check, not you.

  39. 39
    Roger Moore says:

    @Capri:

    I was very surprised it didn’t get more attention and push-back when the law was being debated.

    It got some attention, but it’s the kind of obvious reform that it’s hard to argue against. Nobody wants to come out in favor of unlimited hookers and blow for insurance company executives, especially when you can come out against made up nonsense like death panels instead.

  40. 40
    Figs says:

    Great explanation, thanks. But it leaves me with one question: what’s to stop Mayhew Insurance from treating the extra $2.35 million as a short term interest free loan from its customers, making a small profit from it, and then refunding it? Is it just that the cost of the refund infrastructure is prohibitive when compared to what money they could make over just a month?

    Related question: when do refund checks have to go out? Month by month? Can they fudge it by a week or two, or are there strict controls on the timing?

  41. 41
    Roger Moore says:

    @mtiffany:

    Can the insurerer simply apply the rebate as a credit against future premiums without lowering the premiums? Or do they have to send a rebate check?

    They may be allowed to offer it as a credit against future premiums, but I can’t believe that they would be allowed to make that the only option. Otherwise, they’re using the rebate as an unfair customer retention tactic, screwing over anyone who moves, changes companies, goes on Medicare, dies, etc.

  42. 42
    Richard Mayhew says:

    @Roger Moore: The hookers are against limiting hookers but not blow for insurance company executives.

  43. 43
    Richard Mayhew says:

    @Figs: Effectively, it is a very short term loan at no interest. Refunds are paid out once a year during the summer. Who gets them is a thorny question with some answers at the link below:

    http://www.morganlewis.com/pub.....es_14aug12

    The reason why it is an annual rebate is that monthly pay-out is choppy for even the largest risk pool. Traditionally the two big open enrollment periods have policies starting January 1st and July 1st with another minor bump of new policies starting on Oct. 1. So in January, there is a disproportionate number of people who are paying premiums but whose claims are being absorbed entirely by deductible while by June, almost all of the July 1 policies have satisfied deductibles and a good number of the January 1 and October 1 policies have satisfied deductibles. The same allowed amount in June has a much higher insurance company pay-out percentage than that amount in January.

  44. 44
    1weirdTrick says:

    Why make such a hullaballoo about a ho-hum topic like the MLR? Health insurance consumers, like ALL consumers are optimizing individuals who have infinite amounts of free time to puzzle through the encyclopedia-length lawyer-speak profit-loss statements of their insurer… and then go without insurance for 6-12 months when they take their business to another seller.

  45. 45
    Figs says:

    Ok, cool. The employer/employee thing is indeed a thorny rebate issue I’d never thought of.

    So if this is essentially a short term no interest loan to Mayhew Insurance, is there a mechanism in place to, say, keep Mayhew Insurance from systematically charging higher premiums than they’ll need, even if they’re (semi-) confident they’ll have to pay a refund once the year’s up?

  46. 46
    Villago Delenda Est says:

    Very helpful information, Richard, and a very important provision of ACA that doesn’t get nearly enough attention.

    Directly addresses why the insurance model for health care is bizarre, because health care is not like hedging for an auto accident or a house fire.

  47. 47
    Kylroy says:

    @Gin & Tonic: Essentially this. Property and life insurance existed for centuries before health insurance, and calling a payout a “loss” is wholly unobjectionable when the reason for the payout is a person dying, a ship sinking, or a house burning down. The term carried over to health insurance, and it still made sense when the practice began (I.e. The 1930s) because people pretty much only went to the doctor for major accidents and illnesses.

    I’d rather educate people in the history of the term than try to make up a new one that makes health insurance even less comprehensible.

  48. 48
    MomSense says:

    @Figs:

    I suppose they could systematically charge higher premiums but given that they have to compete on the exchanges, they probably wouldn’t want to do that.

  49. 49
    Davis X. Machina says:

    @Downpuppy:

    Massachusetts has a 90% MLR minimum in the individual & small group market.

    This is obviously why there are no insurance companies or hospitals in Boston…

    Oh, I mean, they’re there in practice, but in theory, they all left.

  50. 50
    Question says:

    Won’t this lead to a reduction in incentives for insurance companies to keep costs down?
    Under a simplified view, you have profits = total premiums – reimbursements. In addition to all the possible specious declines for coverage that you mentioned in your post, insurance companies also negotiate lower prices with providers, encourage use of lower cost treatments, etc. They have a huge incentive to do so when they can keep every dollar they save as profits (see the equation above), but no incentive to do so under the current system (at least until they get to 80% of premiums paid out).

  51. 51
    Richard Mayhew says:

    @Figs: State regulators have to approve rates. Regulators that actually have political backing to do their jobs will ask some very tough/nasty questions as to why premiums are consistently higher than projected costs. PPACA at leasts makes rate increases at or above 10%/year explain their reasoning in a name and shame gesture. This compensates for the states where the regulators either don’t have political backing to do their jobs, or perceive their job is to roger consumers in conjunction with the insurers.

  52. 52
    Richard Mayhew says:

    @Villago Delenda Est: There are two parts of the insurance model. The first part is the traditional insurance model where we insure against risk. I know there is a small probability of getting hit by a bus, so I want insurance for that low probability event and its attendant intensive care stay.

    The other part is the health maitenance for people who already know for a fact that they need a lot of services. This is where insurance as a model is not ideal. We combine the two as that is what the legacy infrastructure lets us do, but splitting out insurance and health maitenance would, behind the veil of ignorance, probably be a very good idea.

  53. 53
    Richard Mayhew says:

    @Question: That model works in theory but has not worked in practice.

    Previously, insurance companies in moderately and lightly regulated states sought comparative advantage and profits by being very good at not covering people who are likely to need lots of costs either through outright not covering people OR being assholes in working people through the ringer of the claims denial-appeal dance. PPACA is actually trying to align incentives (esp. in the individual market segment) so that insurance companies don’t optimize on not covering expensive and sickly people but on actually improving health at a reasonable value proposition.

  54. 54
    jl says:

    @Richard Mayhew:

    thanks for another informative post from RM and commenters.

    “hookers and blow”
    And thanks to the oligarch Mayhew for finally coming clean on what he does with the immense Mayhew insurance company profits :)

    ” State regulators have to approve rates.”
    I don;t think this is true in all states. I think the CA insurance commissioner is trying to get this regulatory power.

    My other comment is that I think RM is a little too simplistic in his comment #52 dividing health insurance payouts into payouts for unexpected events that have a common probability across all policy holders and high maintenance costs that imply a separate risk class. Many lines of insurance face a moral hazard problem where the existence of insurance changes the probability of a loss. And for centuries, lines of insurance have found it profitable and efficient to spend money on risk mitigation programs for policy holders. These include insurance company provided or sanctioned training and education for policy holders, minimum requirements for preventive programs and operating procedures, etc. In America, for fire insurance, this practice goes back all the way to Benjamin Franklin’s fire insurance company. I think many ‘maintenance’ expenditures in health care, though not all, can be considered as this kind of policy to reduce moral hazard.

    As to how much insurance profits from investment. how much that can do to increase profits depends on the average time from payment of a premium to a payout, which varies greatly from line to line. My understanding is that health insurance is considered a ‘long tailed’ (in terms of average time) line, so investment profits should be important, though as far as I know, this aspect has not been studied nearly as much for health as for some lines of property and casualty insurance.

  55. 55
    Roger Moore says:

    @Richard Mayhew:
    It seems to me that there’s a logical relationship between insurance and health maintenance. In the same way that home insurance has an interest in making sure your house and yard is in good repair, health insurance has an interest in making sure your body is in good repair. One of the big reasons our health insurance is so expensive is because people have gaps in health maintenance coverage that let their health decline and increase the risk of catastrophic problems. It probably makes sense from the insurance perspective to make sure people have good health maintenance, and the main reason insurers might not offer health maintenance is because the savings accrue in a longer term than the average time people stick with their company. That’s the whole point of the preventive care provisions in PPACA: it’s cheaper overall for people to have both health insurance and health maintenance than just health insurance, and the mandate for health maintenance/preventive care coverage takes care of the free rider problem.

  56. 56
    jl says:

    @jl: Also, I think it is important to recognize the existence of efficient and profitable preventive and maintenance expenditures for health care that are not specifically for high risk classes of policy holders because it has been a point of (what I think) is tendentious and ill-advised economic mis-analysis (even from HARVARD professors) of comprehensive health insurance policies. It has been claimed by opponents of ACA that any regular scheduled expense cannot be part of a well-designed and legitimate insurance policy. I think this criticism ignores the existence of insurer requirements for risk mitigation strategies that result in regularly scheduled actions that result in economic costs (namely, use of real economic resources, like a doctor visit, or immunization, or clearing brush around a house, or an on-site fire prevention and control program) by policy holders and/or the insurance company in many lines of property and casualty and disaster insurance.

  57. 57
    Ella in New Mexico says:

    Richard, since this issue is effecting a lot of my family and friends, I have a question. How does this aspect of the ACA play out given how so many employer sponsored plans now have jacked up their deductibles, co-pays and co-insurance so much that people are simply not using their health insurance for anything other than the free and low-cost guaranteed services or–God forbid–emergencies over which they have no control that finally tally up into the area the insurance has to cover.

    Example: Single 29 year-old young man with his first full-time, professional job since college graduation 3 years ago. He has “affordable” monthly premiums for insurance that has a $350/person deductible; however, adding up the co-pays and co-insurance he was just told that in order to have a very painful, chronic, prolapsed hemorrhoid banded in an out patient setting, he will have to cough up the full $3500 his plan sets as it’s “annual max out of pocket cost”. He only makes 42k/yr, pays about $1000/month for rent and utilities, takes home about 1800/month after taxes and benefits and has only had this full-time job three months, so he’s got no where near that amount of savings. He told me yesterday “Well, it looks like it’ll be Metamucil and Kotex for the next couple of years, cuz my 16 year old car is dying and I can’t afford to spend that much on my butt.” (I might add that this was a formerly excellent HMO plan, Lovelace NM, that in the past never had had deductibles or these kind of co-insurances or copays. )

    This issue is NOT being addressed by all the hoopla out there celebrating the coverage of the poor, uninsured and small business owners–which is good, don’t get me wrong. As I’ve noted in previous threads, my brother is an upper level engineer for Honeywell corp working on giant defense contracts, and all those bastards can offer their employees is a crappy plan with a $6000 deductible and max out of pocket as allowed by law–over $12 grand. He was unable to determine what, if any, options he had to buy a better plan thru our Marketplace, so he and his wife are just going without anything that isn’t a free or limited to the co-pay health care this year.

    My co-workers at our hospital have similar shitty BCBS Tennessee plans with similarly ridiculous out-of-pocket costs that were unheard of coming out of large employer covered plans in the past. And most of them don’t have the annual incomes to justify the 9.5% rule for subsidies, so they fear they’d be paying MORE to go to the Market place. And none of them are “rich”, so they too go without.

    Why the frigging evil, money-grubbing insurers and the employers who refuse to negotiate with them in hopes their employees will just bail from their plans and go to the Marketplaces next year are not being held accountable for the negative impact they are having in on the ACA I just don’t understand.

  58. 58
    Ella in New Mexico says:

    I guess I failed to finish my question in my last post:

    Given that so many people will not be using their insurance this year, how does that affect the total amount the insurance companies can claim they pay out in benefits, and will they also be held accountable for the fact that their customers simply can’t afford to spend the money required to get the insurance to finally kick in?

  59. 59
    Kylroy says:

    @Roger Moore: It’s only cheaper to do health maintenance if the same insurance company is covering the same person 5, 10, or 20 years down the road. Otherwise, that check up you paid $100 for today is saving your competition $50,000 down the road.

  60. 60
    burnspbesq says:

    @Schlemizel:

    That should be something every company should have to divulge

    Those data are available (for a fee, but the first five requests are free) from the NAIC.

    https://eapps.naic.org/insData/data_detail.jsp?CSRFToken=null

  61. 61
    burnspbesq says:

    @Mudge:

    Interesting that the two examples cited are from Florida.

    It’s more interesting, and more relevant to the discussion, that those examples are from student populations, which are notorious for having low claims experience (and, therefore, low MLRs). There’s a reason why insurance companies compete so hard for that business.

  62. 62
    jl says:

    @Kylroy: That may be huge source of inefficiency in the U.S. health care system. From my experience, an often heard refrain from insurance people is that the market won’t allow them to pay for smoking cessation, or weight reduction or exercise programs, or drug rehab when their competitors will get the benefits two or three years down the road.

    I think in some posts, RM has, maybe unintentionally, exaggerated the turnover in the individual policy market and perhaps unintentionally, implied that it is not a problem in large group markets. I haven’t studied up for last several years, but in 90s through mid 00s, could be 20 percent per year, partly due to annual open enrollment, through company choices of who gets to compete, and enrollee choices of plan. The churn was high enough to make all but very effective preventive programs with very short term paybacks uneconomic for individual plans. Maybe prenatal care, not much else. Only smoking cessation for very high risk individuals who had outrageous risk of heat attack or stroke in next couple of years.

    Edit: a researcher named Ken Warner did a study on individual insurer and health maintenance organization incentives for smoking cessation (edit, except I think for pregnant women): it didn’t pay for individual firm, though social benefits were big (edit, and by ‘social’ I just mean system-wide health care expenditures, not total social welfare).

  63. 63
    Kylroy says:

    @pref=”#comment-4961965″>jl: Yeah, our entire pre-ACA healthcare system was predicated on doctors asking for MORE care, and insurance companies asking for LESS – nobody had an economic incentive for EFFECTIVE care.

    Whereas now…only *most* of the system is that way.

  64. 64
    Roger Moore says:

    @Kylroy:

    It’s only cheaper to do health maintenance if the same insurance company is covering the same person 5, 10, or 20 years down the road.

    That’s what I was trying to say. It saves money overall to have preventive care, but the companies that benefit in the future aren’t necessarily the ones who spend today. Rather than letting the companies take the short term view and refuse to cover that stuff, PPACA forces them to cover preventive care so we as a society benefit in the future.

    That kind of mandate is one of the really good things government can do. Each individual wants to take advantage of the benefits but doesn’t want to pay the costs, i.e. to be a free rider. Rather than letting the whole system fall down because of each individual’s selfishness, we force everyone to participate so we all benefit.

  65. 65
    Richard Mayhew says:

    @jl: Is that the Minnesota study on prevenative care as a net social good but massive money loser for the insurer?

  66. 66
    jl says:

    @Richard Mayhew: I’m not sure. Will try to look it up now, since ‘lunchtime’.

  67. 67
    jl says:

    Here is one article I was thinking of

    The Financial Implications of Coverage of Smoking Cessation Treatment by Managed Care Organizations
    Kenneth E. Warner
    David Mendez
    Dean G. Smith
    Inquiry 2004 41: 57

    Not sure whether journal is publicly accessible. in the text, one bottom line conclusion is that organizations cannot make a profit from smoking cessation, but it will cost them little. I think the authors are too optimistic about the implications. I remember from ten or so years ago, a ten cents increase in per member per month costs was red line for ‘run around with hair on fire’ time in California. Not sure what the situation is now.

  68. 68
    Richard Mayhew says:

    @jl: This is an interesting article as well:

    http://www.floridatobaccocessa.....n_Serv.pdf

    Estimated annual rates of use of smokingcessation
    services ranged from 2.4 percent (among
    smokers with reduced coverage) to 10 percent (among
    those with full coverage). Smoking-cessation rates
    ranged from 28 percent (among users with full coverage)
    to 38 percent (among those with standard
    coverage). The estimated percentage of all smokers
    who would quit smoking per year as a result of using
    the services ranged from 0.7 percent (with reduced
    coverage) to 2.8 percent (with full coverage).

    More on the joys of co-pays to discourage good long term health benefits

  69. 69
    jl says:

    @Richard Mayhew: thanks. I just emailed you the Warner article in case it’s behind paywall. There was a little research and ‘business and policy entrepreneur’ cottage industry about five to ten years ago on making the ‘business case’ for preventive services and reasonable standards of care and access for common ‘lifestyle’ chronic diseases. I’m not sure one was ever made for much of anything that impressed financial analysis types and actuaries. I have seen actuaries at meetings giving panicked presentations about upcoming healthcare messes (many of which seem very accurate in retrospect), but don’t remember them having much in way of solutions in context of pre ACA system.

  70. 70
    aimai says:

    @Ella in New Mexico: My husband and I get our health insurance through his employer. We’ve had a 6000 dollar deductible for several years now–like pre-Obama and Obamacare.

  71. 71
    mclaren says:

    Once again Richard Mayhew is lying to you — this time, a lie by implication.

    The strong implication in Mayhew’s latest post is that health insurance companies are the major driver in waste and high costs for American medical care. This isn’t the case.

    The major drivers in waste and super-high costs for American medical care are: lack of competition and cartelized restraint of trade among medical devicemakers, doctors (the AMA severely restricts the number of doctors who can enter medical school each year by restrcting the number of medical schools — there are fewer medical schools in America today than there were in 1965), hospitals, and drug manufacturers.

    Mayhew talks about waste and excess profit amounts of 50% as though they were outrageous or uncommon in the American health care system.

    In several cases where BusinessWeek was able to obtain benefits ratios from colleges or universities, the percentage was well below 70%.

    At Palm Beach Community College, the benefits ratio for the spring semester of 2008 was 42.6%, according to reports provided to the school by UnitedHealthcare.

    In previous semesters the benefits ratios dipped as low as 10.2% and 13.8%. This means the college’s plan has been a veritable gold mine for UnitedHealthcare.

    Mayhew describes as a “gold mine” paying 10.2% of premiums out as benefits, meaning a profit ratio of 89.8%.

    But that’s small beans for America’s corrupt broken collapsing health care system.

    In reality, profit ratios of 1200% are more common in American health care. 89.8% is mild and modest by comparison.

    Christina Bernstein, a medical-device engineer and independent sales representative based in San Francisco, sells disposable surgical tools made mostly out of plastic that she estimates are manufactured for about $40 each. These are marked up and sold to hospitals for as much as $350, she said, for a single use in a surgery on a patient.

    “But if you were to get a detailed bill of what the hospital was charging the insurance company for the insured patient, those things get marked up to something like $1,200,” Bernstein said. “It’s ridiculous. There’s no open competition.”

    With doctors and hospitals sprinkled in every congressional district and wielding their clout, a year of health reform in Congress has overlooked some of the biggest cost drivers in American medicine.

    “While the talk surrounding health reform has been about problems with the health insurance market, and I don’t want to suggest that’s entirely misplaced, I think market power on the part of providers, doctors and hospitals is a bigger issue,” said Martin Gaynor, an economist at Carnegie Mellon University.

    Source: “Experts warn of medical industry cartels’ power,” San Francisco Chronicle, 21 February 2010.

    Q: What’s the profit ratio for a device that costs $35 to manufacture and gets billed at $1200?
    A: 1200/35 * 100 = % = 3428%

    Compare with the Richard Mayhew example of an 89.8% profit ratio, which Mayhew describes as “an egregious example.”

    3428% vs the profit ratio Richard Mayhew chooses to highlight, and which he indignantly huffs at as “egregious.”

    Y’know, I think most people would consider a profit ratio of 3428% as much more egregious and far more outrageous than the piddling little 89.8% ratio Mayhew chooses to express faux outrage at.

    Isn’t it interesting that Mayhew never even mentions the 3428% profit made by that medical devicemaker of disposable surgical instruments when he goes off on his long pointless disinofrmational digression about the alleged drivers of high costs in American medical care?

    To see just how “egregiously” Richard Mayhew is lying to about the real cost drivers of American health care, let’s take a walk through Ezra Klein’s article “21 graphs that show America’s health care costs are ludicrous”:

    The cost of an angiogram in America is $2430 vs $35 in Canada. That’s a profit ratio of 6942%. Mysteriously, Richard Mayhew never mentions this as a cost driver in American health care.

    The cost of a routine doctor’s office visit in America is $176 vs $25 in France. That’s a profit ratio of 704%. Mysteriously, Richard Mayhew never mentions this as a cost driver in American health care.

    The cost of bypass surgery in America is $150,515 vs $14,117 in Great Britain. That’s a profit ratio of 1066%. Mysteriously, Richard Mayhew never mentions this as a cost driver in American health care.

    The cost of hip replacement in America is $87,987 vs $7,731 in Spain. That’s a profit ratio of 1138%. Mysteriously, Richard Mayhew never mentions this as a cost driver in American health care.

    The cost of an appendectomy in America is $29,426 vs $4498 in the Netherlands. That’s a profit ratio of 654%. Mysteriously, Richard Mayhew never mentions this as a cost driver in American health care.

    How long are you people going to sit there and simper while Richard Mayhew lies to you about the real cost drivers of American health care?

  72. 72
    biz5th says:

    @mclaren: @mclaren: “The major drivers in waste and super-high costs for American medical care are: lack of competition and cartelized restraint of trade…”

    Mysteriously, none of your counter-examples of lower spending (Canada, France, the Netherlands, Spain) accomplish their lower unit costs through more competition or less restraint of trade.

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