Part of the Senate bill invites states to file waivers that basically would allow a state to do whatever it wanted. One of the elements of the ACA that can be waived is the requirement that insurers spend at least 80% of the premium dollars on claims. That is known as the Medical Loss Ratio (MLR). Waiving MLR is an invitation to loot in single insurer states.
The #ACA req'd that insurance companies use your premiums for actual healthcare cov. #TrumpCare repeals it #CBOScore https://t.co/lyI2CfEziV pic.twitter.com/2mpRxchU0l
— Khary Penebaker (@kharyp) June 26, 2017
Here is how it would work in a single insurer state.
The insurer would split their business into two filing entities. The first one would be off-Exchange only. They would file normal rates for this entity. The second one is the vehicle designed to extract cash from the federal government as it offers on-Exchange policies. These policies will be extremely pricey. The benchmark plan could be a nation wide network PPO for instance. The insurer could offer a low cost local network Bronze and Silver plan priced under benchmark. The subsidized buyers are protected from the price increases as they pay a percentage of income and the federal government picks up the rest.
The insurer runs a 70% MLR while keeping core administrative costs relatively low. This produces a new pot of money that can be split three ways. The first stream is a small stream. It is a public benefit stream where the insurer sponsors more Little League teams or sponsors a neighborhood vaccination clinic or some other combination of public facing entities that makes the community smile. The second stream goes to campaign contributions and other legal financial and political cover to friendly regulators who can help keep the region a single insurer region. The last pool of money is internalized for senior company stakeholders or distributed back as profits.
This scheme is straightforward. It is legal. It is against the interests of a region with only a single insurer but the costs are diffuse and the benefits are tightly concentrated. It fails in multi-insurer regions unless there is illegal collusion. MLR requirements are usually superfluous in competitive markets. Insurers can be profitable with MLRs in the high 80s and low 90s. I worked at one that was. MLR requirements are a constraint on looting in non-competitive markets.
RepubAnon
Why waste money on providing health care, when it could be better spent on bloated executive salaries and political donations?
-Mitch McConnell’s brain
rikyrah
An invitation to loot…
Well, there you go.
THAT is the point ???
D58826
Does anyone seriously think that the states that turned down Medicaid will not use all of the waiver processes available so that their plans cover as few of THOSE people as possible. When ever I see a GOOPER say the CBO missed the number of enrolles under Obamacare I want to kick the TV. Of course CBO missed the number. They assumed that Medicaid would be expanded to all 50 states. I wonder how far off CBO would have been with the 50 state expansion.
And just a thought experiment that probably can never be quantified. I wonder how many non-Medicaid eligible people would have signed on to the exchanges once they saw that Medicaid eligible neighbors were not struck by lightening. Kind of a reverse herd immunity from the world of vaccines.
daveNYC
The only problem with your analysis is that I’m not sure that the insurance company would bother with the public benefit stream. As long as the insurance they’re selling is doing a good job, the only thing they have to worry about is keeping the elected officials happy.
low-tech cyclist
David, a technical question about MLRs. Currently, they apply to all health insurance, right? (IOW, to individual policies on and off the Exchanges, and group policies too.) So if the MLRs go away, would that affect uncompetitive areas of the private market too?
AnonPhenom
O/T request; I don’t ‘do’ social media.
Can someone with a twitter account forward this to that douchcanoe over at National Journal, Ron Fournier?
https://twitter.com/ron_fournier
AnonPhenom
Thanks
low-tech cyclist
@daveNYC: Oh, it’s always worth throwing some token money in that direction. It takes a lot longer for people to get riled up at a company that’s sponsoring their kid’s Little League team. Even as the company’s screwing them over, they’ll think the company is on their side and is really giving them the best deal they can.
This sort of thing can forestall for a good long time the sort of public indignation that could force state regulators to act when they’d rather not do so.
David Anderson
@low-tech cyclist:
Short answer is yes, it would effect all areas of the insurance market.
MLR requirements in the ACA applies to all fully insured plans. That is on and off-exchange individual market, and most of the small and some of the medium group employer markets. Medicare Advantage, Medicaid and CHIP have MLRs from either MACRA or regulation (super rule).
@daveNYC: Cheap goodwill and community allies that can be bought for pennies. Pharma does this all the time with patient advocacy groups. They’ll throw a $100K at a patient group who can provide pharma friendly sob stories whenever Congress holds hearings on restraining hookers and blow expenditures
low-tech cyclist
Thanks, David!
smintheus
This is a very important and politically explosive point, but you might want to reword the opening paragraph for the sake of clarity:
The word “it” in the third sentence seems like it could refer to the MLR mentioned in the second sentence, whereas it’s meant to refer to the existence of the waiver.
Ohio Mom
Portman’s Cincinnati office is answering the phone this morning (number can be found on bottom of his home page). The rest of the offices still have full mailboxes.
I hear there is a all-day protest outside his Cincinnati office today and a rally across the street from the downtown library at 5:30.
I’m hoping to get there before 6:00. I’ll be the one with the Don’t Block-grant Medicaid sign.
smintheus
@Ohio Mom: I have never succeeded in getting through to Toomey’s DC or local offices. This morning I phoned the local office just after 9 AM; it rang a number of times, someone finally picked up…and a second later the line went dead. When I redialed, I got the standard “we are currently on the other line” recording. So I immediately dialed the other number, and got the same “we are currently on the other line”.
Toomey’s staffers are scared of facing voters’ outrage.
japa21
David, just asking for your thoughts on this. We all know the ACA isn’t perfect but it also isn’t as bad off as the GOP (and media) like to say it is. Aren’t the two biggest issues the lack of Medicaid expansion to all the states and the stoppage of risk corridor payments? IOW, didn’t a lot of insurers have to drop out of the markets because the risk corridor payments never materialized?
glaukopis
@Ohio Mom: I’ve been trying to get through since 8:30 to any of Portman’s offices. No luck so far.
Ohio Mom
@smintheus: Yes, they are definitely laying low.
You can always email. I think all of them have an email tab on their sites.
You don’t automatically have a copy of what you wrote like you do with your own email (I guess you might be able to copy, cut and paste your text but I’ve never tried that). And you do get put on their mailing list.
But you have the satisfaction of having done something. I just write whatever comes to mind, just like leaving a comment here. No use in sweating over it, it is not being graded, it is not a cover letter for the job of your dreams. It is ultimately just another tally mark in the Against column.
Ohio Mom
@glaukopis: Maybe you had trouble getting through to the Cincinnati office because I was hogging the line…
I had a lot of trouble yesterday getting through until very late in the day. It isn’t easy.
D58826
Seems to me that we have reached the point with the (gag, cough, gag) ‘NO’ votes is like the old saying ‘Madam we have already determined what you are. Now we are just haggling over price’. Yurtle has 200 billion he can use to sweeten the deal for the ‘NO’ votes and they can then go back to their states and wave a check in front of voters not affected by the law and say ‘look at the good deal I got’.
Ohio Mom
@D58826: I think there is a good possibility Portman will do just that if given a little extra for opioid treatment.
David Anderson
@smintheus: Updated, good point!
David Anderson
@japa21: I think we need to split the issues from historical to forward looking.
1) Historically not paying the Risk Corridors threw a major handful of sand into the gears in 2015/2016. It is now irrelevant going forward. If the courts orders the Feds to pay, that is either a windfall for the insurers’ balance sheets or a windfall for the creditors of the closed insurers and co-ops.
2) Medicaid non-expansion is a major problem both historically and going forward
3) Going forward, not knowing the policy environment is what is driving the rate increases. There is a stable market equilibrium with a single carrier in a region and a stable equilibrium of converged markets among competing Medicaid like providers.
4) Tweaks are always needed (SEP verification leads to one stable equilibrium of low SEP uptake, getting rid of family glitch matters, changing subsidy attachment point alters the market etc)
bendal
That describes NC in a nutshell. BCBS has nearly every conservative state legislature bought and paid for, with the result that BCBS has a near monopoly on health insurance policies throughout the state. Did I mention NC also refused Medicaid expansion or setting up their own exchange? Why do so when only one insurer works in the state (and makes sure they stay that way)?
David Anderson
@bendal: There are a number of states where this could occur.
I think the decision to not take up Medicaid Expansion is independent of BCBS-NC influence or market power (as the owners of the biggest healthcare database in the state, Expansion run through MCO’s should advantage them)
daveNYC
@David Anderson: I hadn’t considered using the cash to setup a pool of friendly witnesses that you can tap for sympathy at hearings.
I can only imagine a future where health insurance combines the consumer choices of the cable TV market with the overbilling of the MIC.
Brachiator
The Republican efforts to repeal Obamacare have little to do with providing health care insurance to Americans. Instead it is all about
— getting the jackboot of evil federal government off of people by repealing the individual mandate. How dare the nanny state make people be responsible and get health insurance.
— repealing the modest tax increases on high income people that helped pay for ACA. The dad gurned gummit ain’t got no right to take rich people’s money
— returning to status quo in which insurance companies can do whatever they want to maximize their own profits. Running government like a business means letting business alone.
Jack the Second
The MLR rule is an excellent example of how government regulations can increase the public good without really costing tax payers any money. Of course they want it gone.
Before the ACA, one of the insurers sold a plan with a 10%(!) MLR.
Barbara
It’s good of you to do this. As of 1994, I more or less have refused to delve into the nitty gritty of legislation unless it passes or someone pays me to do it. However, I have been posting big picture analyses like mad on Facebook, probably to the frustration of my small cadre of “friends.” I do think that the following from Slate is one of the better “rolling analyses” of both the bill and its political fate that I have come across. I would share it on FB except I think I have probably done enough today. http://www.slate.com/blogs/the_slatest/2017/06/27/graphic_of_senate_health_care_bill_bcra_as_scored_by_cbo.html
God, even David Brooks is disgusted in a way that I actually agree with (mostly). And the Yahoo news item on the donors who are pissed that they aren’t getting what they bought and paid for should be shared with all and sundry. That can be found here: https://www.yahoo.com/news/koch-urgency-conservative-network-fears-closing-window-075811642–election.html
All we have now are arguments and phone calls. I keep discreetly calling Toomey on my mother’s behalf. Ahem.
Barbara
@Jack the Second: The MLR provisions are really intended to protect individual and small group purchasers. Pre-ACA protections varied tremendously by state. 80% for small group or individual is probably a little ambitious (more likely to lead to consolidation because there is such a benefit to economies of scale). 85% for large group is probably close to what most insurers achieve on average for large groups, which tend to have a lot more options for how they get coverage.
ETA: Also, for reasons that are both simple and complex, MLR only really protects consumers as well as it should when there is a sufficient amount of competition to prevent insurers from agreeing to share “monopoly rents” with providers in order to have a higher number from which to extract the permitted percentage for admin and profit.
Ted Doolittle
There is a school of thought I heard expressed recently by the CEO of a small insurance carrier that the MLR rule has an unintended perverse consequence, and in the long run does not protect consumers, because it creates an incentive within the carriers to inflate claims — the concept is probably much more subtle than what I am about to say, but to simplify, higher medical costs yields a bigger 15% or 20% pie for the insurer to play with and take its profits out of. The carrier want to make the 80% portion of the pie as big as possible, in order to maximize the 20% admin cost portion of the pie. This incentivizes the carriers to keep medical costs high, and perhaps unintentionally aligns the carriers in a perverse way with the providers — the theory is that in an MLR world, carriers lose any incentive to keep provider prices low. (One can argue about the strength or efficacy of the carriers’ incentive to keep medical prices — maybe this is only a nominal incentive — but if an MLR is in place, even this nominal incentive within the carriers to keep prices low goes away.)
I hadn’t heard this until recently, and am still trying to figure out if this should change my hitherto basically pro-MLR thinking.
Comments, Dave or others?
David Anderson
@Ted Doolittle: I think that school of thought is right in non-competitive insurance markets. At that point it is an exercise in determining the best way to maximize hookers and blow.
The solution would be a PMPM cap for non-claims expense at that point but that is a direct interference by the government into private business.
I don’t think this thought applies much if at all in competetive markets though
Barbara
@Ted Doolittle: This is what I was trying to say in my cryptic last comment. MLR is a refinement in a competitive market. It can exaggerate perverse incentives in a non-competitive market.