HCR: The Good News and the Bad News

There is surprisingly good news in the HCR bill. And there is bad news. But in a departure from the old joke format, it's the same news: the enforced medical loss ratio of 80–85%.

As Froomkin and others have noted, the insurance companies will try to game that provision and their overall strategy is to make as much money as possible. However, their tactics will change; in fact their tactics already have changed. The first evidence we have of this is the climbdown over accepting children with pre-existing conditions.

Some believe the backdown came because the insurance companies didn't like the bad publicity it engendered. This is completely wrong—they don't care about bad publicity when they operate state-wide monopolies or cartels and the individual mandate is going to kick in. They just don't care how bad they look under those conditions.

Some might claim that the backdown is the first sign of greater competitiveness in trying to get new sign-ups. That too is wrong. There are some effectively state-wide monopolies which won't be opened up to cross-state insurance and/or public exchanges for a while.

The real explanation has is one of these: Some underling, unaware of the change in game plan, issued a statement that would have been valid under the old tactics but not under the new ones. Or this was a piece of misinformation to induce politicians that they really had changed their spots so that further legislation would be unnecessary.

Why do I say that? Because when there is a minimum medical loss ratio (the amount paid out for treatment to the amount paid in) of 80% then raising prices won't increase profits—they'll be forced to refund payments to bring the MLR up to the minimum of 80%. But there is another way of raising profits: increase the amount of medical payments made so that price increases can then be justified. The icing (recission, caps on yearly payouts, etc.) has been scraped off their cake, so they have to make the cake bigger.

And that's why they're happy to take on children with pre-existing conditions. That increases the MLR to the point where they can justify price increases. And that's why they'll implement all the provisions in the bill ahead of schedule, and even implement things that aren't in the bill. No more recission, not even when fraudulent details were provided at sign-up. No more caps on individual annual or lifetime treatment costs. Co-pays will drop drastically or even vanish completely.

All that, from a liberal perspective, is a good thing. Your health insurance costs may rise somewhat, but not only will you get better treatment so will most of those currently uninsured. And it will happen ahead of the timeline in the bill.

So what's the bad news? These bastards will game it to the full. Doctors and hospitals already tend to conduct unnecessary (and expensive) tests to avoid any possibility of a law suit claiming negligence. The insurance companies will do all they can to encourage that. Your premiums will rise to cover those unnecessary tests but the insurance company cake gets bigger.

Highly-expensive experimental drug? In the past the insurance companies blocked expensive drugs claiming there was little or no evidence they were better than existing drugs. Now they will encourage the use of those expensive drugs even if all the evidence says they're worse than existing drugs.

Unnecessary surgery? Once it was rejected, now it will be encouraged. Penile enhancement? Sure you can have it.

About the only thing they may be reluctant over is regular checkups. The doctor might find something that can be treated by a change in lifestyle or a cheap drug, and then you'd have a long life paying your premiums but claiming little. Prior to the MLR cap that was exactly what the insurance companies wanted. Now the MLR is there, they want you sick, sick, sick and as soon as possible. That way they're paying out and can justify premium increases to maintain a healthy (for them) MLR that's just above 80%.

So there's good news and bad news—unfortunately it's the same news. It can be fixed, but not without additional legislation. The best fix would be single-payer. Second-best would be public option. What will probably happen is a pile of band-aid measures that still have loopholes.

thanks!

tying the increase to inflation or requiring justification of the cost increases with the threat of decertifying the insurers from provision of primary health insurance. If a couple of big providers were decertified a public plan would be necessary, not optional, and with any luck we'd be on the road to single payer.

Who knows? Maybe pigs could fly too.

In theory, yes. But the way they'll game the system is to cover everyone (whether the bill requires them to or not) and increase the amount of treatment. Sounds ideal. But of course their MLR will increase above 85% and they'll point out that they're becoming unprofitable so need to increase their rates.

What's a regulator to do? Order them to provide less treatment? Order them not to cover expensive treatments but fob people off with cheaper ones? Order them to keep their rates fixed so that they become increasingly less profitable until they go bankrupt? I think the regulator is going to meekly give way. After all, they are increasing the amount of treatment and good health care for all is the point of the bill.

So you'll get better health car (good) or at least more treatment (not so good) and greater coverage (good) at rates that become increasingly unaffordable (bad). Health insurers and big pharma will continue to make increasing amounts of money, which exactly how they like it.

The first year that it becomes apparent that health insurers are gaming the system in the way which you describe there will be a clamor to fix that incentive.
If private insurers are, for example, paying for more expensive but not more effective therapies or treatments than Medicare or Tricare that would suggest that insurers have room to trim costs without affecting care, and the burden should be on the insurers to demonstrate why spending more money is to the patient's benefit rather than just the corporate bottom line.



eta: I'd still rather have the insurance companies locked out of the primary health care market because they do as a principal objective maintaining the financial health of their own entities, whether profit or nonprofit.