Requiring Health Insurers to Spend More on Health Care Doesn’t Reduce Premiums


Does requiring health insurers to spend at least 80 percent of premiums on health care result in lower premiums? Some health-care policy experts say it doesn’t.

Obamacare requires health insurers who don’t meet the requirement to refund the difference to consumers, and since the provision took effect in 2011, nearly $2.8 billion in rebates have been paid to consumers, according to the Department of Health and Human Services.

But the Senate Better Care Reconciliation Act (H.R. 1628) would repeal the provision in 2019, allowing states to establish medical loss ratio standards for fully insured group and individual policies and set rules regarding annual rebates.

Proponents of the provision say repeal would allow health insurers to raise premiums without accountability. “The only thing that’s going to do is help insurance companies,” Rep. Gene Green (D-Texas) told me in an interview.

Green pushed for the provision to be included in the Affordable Care Act when the law was debated in the House. The MLR forces health insurers to put money “into the health-care system, instead of marketing,” Green said.

But Steve Cicala, assistant professor of economics at the University of Chicago, disagrees. He is co-author of a study that found that premiums were not reduced but claims costs increased.

“The medical loss ratios create a sort of blunt instrument that is lot like the way states regulate electricity rates, cost-of-service regulation,” Cicala said. “The rate you’re allowed to charge consumers is tied to your costs,” which leads to the kind of regulation that electric utilities are subject to.

The difference is in health care “there’s no one to say no on behalf of the consumer,” as there is for utility rate regulation, Cicala said. “As long as their expenditures are a sufficiently high cost of their premiums, they can spend on whatever they want.”

Read my full article here.

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