- Thread starter
- #41
So when will we see those rate reductions that we were promised?
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Is ObamaCare Causing Health Insurance Premiums to Rise?
Peter Suderman|Jan. 8, 2013 9:30 am
Perhaps there's another explanation? For example: Might ObamaCares new rules and regulations being playing some role in the increases? Theres good reason to think the law itself is at least partially responsible.
It's seems likely, for example, that ObamaCares new coverage mandates have contributed to some of the increase in the individual market: Consulting firm Aon Hewitt estimates that those premiums have gone up about 5 percent as a result of the law.
That explains some of the increase. But not all of it. Which is why those looking for another culprit should consider the possibility that a provision intended to help consumers get better value for their money is actually costing them higher premiums.
That provision, often referred to as the 80/20 rule, sets mandatory medical loss ratios (MLRs) for health insurers. The MLR is an accounting requirement which says that insurers have to spend at least 80 percent of their total premium revenue on medical expenses, leaving just 20 percent for administrative costs, marketing, and other non-medical expenditures. Any insurer that fails to meet this target must issue rebates to customers. This year, insurers rebated about $1 billion.
The MLR provision creates two incentives for insurers to jack up health insurance premiums. One is the plain fact that with profit and administrative costs capped as a percentage of premium revenue, the easiest way to generate larger profits is to charge higher premiums.
The other is that the rebate requirement means insurers may need to charge higher up-front premiums in order to protect themselves from the risk of a bad year. As Scott Harrington, a professor in the University of Pennsylvania's Department of Health Management, explained in a November 2012 paper, thats because health insurance claims and thus MLRs fluctuate significantly between years. Harrington's paper, which got funding from a health insurance trade group, argues that the annual variation, and the resulting uncertainty, creates a problem for insurers: If claims are low in a given year, they end up rebating the difference to the customer because of the MLR rule. If claims are unexpectedly high, however, they end up eating the difference. Insurers thus have a incentive to protect themselves by charging high premiums at the outset, and then paying those premiums back in rebates should claims come in at low or expected levels.
Is the MLR rule causing the higher premium requests? It's hard to say with certainty, but it fits the bill in many ways: Harrington's analysis suggests that the high up front premiums should be concentrated in the small-group and individual markets, which is exactly what the Times reports. No matter what, it's clear that ObamaCare isn't resulting in lower premiums. And for many people, in the years after the law, premiums aren't just going to up up a little. They're going to rise a lot.
Is ObamaCare Causing Health Insurance Premiums to Rise? - Hit & Run : Reason.com
*******************************************************
Is ObamaCare Causing Health Insurance Premiums to Rise?
Peter Suderman|Jan. 8, 2013 9:30 am
Perhaps there's another explanation? For example: Might ObamaCares new rules and regulations being playing some role in the increases? Theres good reason to think the law itself is at least partially responsible.
It's seems likely, for example, that ObamaCares new coverage mandates have contributed to some of the increase in the individual market: Consulting firm Aon Hewitt estimates that those premiums have gone up about 5 percent as a result of the law.
That explains some of the increase. But not all of it. Which is why those looking for another culprit should consider the possibility that a provision intended to help consumers get better value for their money is actually costing them higher premiums.
That provision, often referred to as the 80/20 rule, sets mandatory medical loss ratios (MLRs) for health insurers. The MLR is an accounting requirement which says that insurers have to spend at least 80 percent of their total premium revenue on medical expenses, leaving just 20 percent for administrative costs, marketing, and other non-medical expenditures. Any insurer that fails to meet this target must issue rebates to customers. This year, insurers rebated about $1 billion.
The MLR provision creates two incentives for insurers to jack up health insurance premiums. One is the plain fact that with profit and administrative costs capped as a percentage of premium revenue, the easiest way to generate larger profits is to charge higher premiums.
The other is that the rebate requirement means insurers may need to charge higher up-front premiums in order to protect themselves from the risk of a bad year. As Scott Harrington, a professor in the University of Pennsylvania's Department of Health Management, explained in a November 2012 paper, thats because health insurance claims and thus MLRs fluctuate significantly between years. Harrington's paper, which got funding from a health insurance trade group, argues that the annual variation, and the resulting uncertainty, creates a problem for insurers: If claims are low in a given year, they end up rebating the difference to the customer because of the MLR rule. If claims are unexpectedly high, however, they end up eating the difference. Insurers thus have a incentive to protect themselves by charging high premiums at the outset, and then paying those premiums back in rebates should claims come in at low or expected levels.
Is the MLR rule causing the higher premium requests? It's hard to say with certainty, but it fits the bill in many ways: Harrington's analysis suggests that the high up front premiums should be concentrated in the small-group and individual markets, which is exactly what the Times reports. No matter what, it's clear that ObamaCare isn't resulting in lower premiums. And for many people, in the years after the law, premiums aren't just going to up up a little. They're going to rise a lot.
Is ObamaCare Causing Health Insurance Premiums to Rise? - Hit & Run : Reason.com