MLR Makes Insurance More Expensive

[Yagents]

Wrong again. 20+ yrs in medical reinsurance, studying loss reports and rate formula's might just give me an edge.

I am moving on.

Bob, I know you have more experience than I, but I just read your blog post on 9/4/12 stating the following:

[FONT=Helvetica Neue, Arial, Helvetica, sans-serif]Apparently Mr. Stanley believes the health insurance MLR is or will actually work to "bend the health care cost curve" and make health insurance more affordable for everyone.[/FONT]
[FONT=Helvetica Neue, Arial, Helvetica, sans-serif]Regular readers of InsureBlog will know that MLR is not only a total failure but is actually responsible for higher premiums, higher costs for carriers and employers, and fewer consumer choices.[/FONT]

So, educate me, where have I gone astray in my thought process?

 

[toddoxley]

If 25% of "Y" was paying the bills, and then through the heavy hand of Government a Private Co. is told they can now only spend 20% of "Y" to pay the bills what are they to do. 1) lower expenses 2) increase "Y". "Y" in this examle is premiums. It sure seems reasonable to think the carrier will have a even stronger incentive now to increase premiums to cover the bills.
I too, would like to understand how MLR does not increase health insurance premiums..

 

[JMO Fan]

Suppose carrier A is spending $75 on claims out of every $100 premium. That leaves $25 on non-claims.

MLR requires 80%. But that counts claims plus "Quality Improvement," e.g., wellness, technology, etc.

Carrier A boosts premium to $125, with $75 to claims and $25 to Quality Improvement. Its MLR is 80%, with the same claims. They still have $25 to spend on non-claims (and 60% on claims as required by states).

 

[Yagents]

From AHIP webpage: America's Health Insurance Plans - Medical Loss Ratio

• Turns-back-the-clock on efforts to improve quality and root out fraud and abuse by only allowing recoveries from fraud programs to be counted towards the MLR (while capping expenses to prevent or deter fraud). Moreover, the requirement does not fully recognize the costs of transitioning to the ICD-10 coding system as a quality expense, a move that is aimed at better monitoring and tracking of health care quality.
• Inhibits innovation by capping any expenses that are not on a pre-approved list of "activities that improve health care quality."