If you don’t know what the Medical Loss Ratio is (as it is mentioned a few times in this article), take a look here: MLR Explain in Video with Funny Dancing
Written by Sally C. Pipes
Nearly three weeks after U.S. District Judge Roger Vinson ruled the president’s health care overhaul unconstitutional in a lawsuit brought by 26 states and the National Federation of Independent Business, confusion is plaguing the American health care system. Some states are preparing to enforce the law while others have adopted a wait-and-see approach.
The Obama administration, meanwhile, has asked Vinson to clarify that states must implement the law while the appeals process runs its course.
Despite all the uncertainty, private insurers aren’t taking any chances. They’re in the midst of adjusting to the law’s requirement that they spend a certain percentage of their revenues on medical claims. ObamaCare’s advocates hope the provision will ensure consumers get good value for their premium dollars. And if the rule makes life harder for insurers, so much the better.
Unfortunately this “minimum medical loss ratio” regulation will harm not just insurers but workers and employers too, as they’ll face higher prices and fewer choices for insurance.
ObamaCare requires insurance companies to spend at least 80% of premiums received in the individual and small-group markets–and 85% of premiums received in the large-group market–on claims. If an insurer is unable to meet those targets, it must rebate the difference to consumers.
These medical loss ratio (MLR) rules are designed to limit supposedly wasteful spending on administration and profits to 20% in the individual and small-group markets, and 15% in the large-group market.
But insurers are hardly profligate. According to Fortune magazine, the health insurance sector is among the least profitable in America–with a mere 2.2% profit margin. That’s good enough for 35th place.
Further, many insurers’ administrative costs–for salaries, rent and the like–are fixed. ObamaCare instructs them to drive those costs down as a share of their overall revenues. In order to do so, they’ll have to raise premiums or lay off workers.
Initially, though, insurers are simply taking ObamaCare on the chin.
Read More on Forbes.com (There are 3 pages of text mixed in with a ton of ads! Sorry about that. I usually try not to share stuff that is hard to track through the ads.)