Tuesday, September 14, 2010

ObamaCare Will Dramatically Reduce Choice in Private Health Insurance

One of the ways in which ObamaCare will reduce individuals’ and businesses’ choices of health insurance is through regulating the Medical Loss Ratio (MLR), a relatively simple concept: Take the amount of dollars an insurer spends on medical care and divide it by the total premiums. For example, if an insurer earns $10 million in premiums and spends $8.5 million on medical claims, its MLR would be 85 percent. Under ObamaCare, policies that cover large businesses will have to achieve an MLR of 85 percent, while those for small businesses and individuals will have to achieve an MLR of 80 percent.

That shouldn’t be too hard, should it?

Actually, the MLR can be quite complicated – especially when the government gets involved. Suppose, for example, an insurer invests in information technology that it gives to providers in its network in order to improve co-ordination of care. Is that a medical cost? Also, health insurers pay taxes. Although these taxes are obviously not medical costs, is it appropriate for the government to punish an insurer that pays higher taxes, which are revenue to the government?

Read my entire analysis in the latest Health Policy Prescription.

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