The Wrongologist

What’s
Wrong Today:

This summer, health
insurance companies may have to pay more
than a billion dollars back to their own customers. The rebate
requirements were introduced as part of the 2010 Affordable Care Act, and are
meant to benefit consumers.

It is known as the medical
loss ratio rule (MLR). According to Cheryl Clark of Health
Leaders Media, the health reform law requires insurance companies in the
individual and small group markets (less than 100 insured) to spend at least
80% of their premium dollars collected on medical care and quality
improvements. For companies in the large group market, the rate is 85%,

Under this provision, 80 to
85 cents of every dollar insurers collect in premiums must be spent on medical
care or activities that improve the quality of that care. If not, they must
send their customers a rebate for the difference. The goal, according to the
Department of Health and Human Services, is to limit the money insurers spend on administrative
costs and profit.

So, What’s Wrong?

An insurer-supported Senate
bill aims to roll back the rebates.

Last month, Sen. Mary
Landrieu, D-La., introduced a bill that would change what costs
companies can include in the 15 to 20 percent they are allotted for overhead,
salaries and marketing. The bill, similar to a House bill introduced in March
2011 that has 180
co-sponsors, but has yet to come up for a vote, focuses on protecting payments to insurance agents and brokers.

Traditionally, these
commissions are bundled into the administrative costs when making the final
calculation. But insurance regulators in 21 States, including Landrieu’s
Louisiana, have argued that fees paid to insurance agents and brokers
shouldn’t count.

If enacted into law, this change
could mean big savings for insurance companies — and much smaller rebates for
consumers.

This is the first year that
companies are required to send out rebates. According to a report by state
insurance commissioners, if rebates had been handed out last year, insurers would have had to pay
consumers almost $2 billion.
If broker fees were carved out, as proposed in the two current bills, consumers
would have gotten only about $800 million. While most insurance companies are
expected to hit the 80 to 85 percent target, those that do not may be required
to send out rebates this year.

Pro Publica quoted Sondra Roberto, a
spokesperson for Consumers Union, which also publishes Consumer Reports:

“[The bills] would
water down the standard to a point where it becomes ineffective…Some insurance
companies pay an inordinate amount, as much as 40 percent, on administration
and profit and not health care..”

Consumers Union has urged
members to oppose the bill.

The rebates have gotten
relatively little attention. Only 38
percent of the public
is even aware of the rule’s existence, according to a Kaiser poll.

Insurance companies have
supported both the House and Senate bills, claiming that the rebate rule will
cause them to lower broker commissions and stifle jobs. They also claim that it
drives up insurance premiums. A 2011 government report found that most
insurance companies were lowering broker commissions, while only one firm was in
fact, considering lowering their premiums to meet the requirements, as the
administration had hoped.

In all cases, the way the
ACA was written, insurance companies will be required to make all their costs
publicly available so consumers can see how their premium dollars are spent.

Let’s
get this straight: The insurance companies (through their regulators) are
moaning that the legislation will drive up premiums? Above the 25%-35% annual increases we have seen recently? Insurance brokers are saying that they may have to leave
the business if their commissions are reduced?

All of that seems doubtful.
So, what’s up with Mary Landrieu?

The Senator must owe
Louisiana’s insurance brokers.

Shows that the glad handing
is shrink-wrapped to ensure freshness.

And it is WRONG!