Most important AND most overlooked sentence in HR3962
by Bruce Webb, Wed Nov 11, 2009 at 11:24:55 AM EST
SEC. 102. ENSURING VALUE AND LOWER PREMIUMS.Discussion in extended entry and comments.
(a) GROUP HEALTH INSURANCE COVERAGE.--Title XXVII of the Public Health Service Act is amended by inserting after section 2713 the following new section:
``SEC. 2714. ENSURING VALUE AND LOWER PREMIUMS.
``(a) IN GENERAL.--Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary (but not less than 85 percent), the issuer shall provide in a manner specified by the Secretary for rebates to enrollees of the amount by which the issuer's medical loss ratio is less than the level so specified.
Most of the criticism of HR3962 coming from the left revolves around the belief that the House bill has no premium and so no profit controls, that it in effect delivers millions of Americans into the hands of insurance companies who can continue to raise premiums at will while denying care by managing the risk pool in favor of those unlikely to make claims. This just is not true, not if the provision in this one sentence is properly implemented. In a stroke it guts the entire current business model of the insurance companies, based as it is on predation and selective coverage, and replaces it with a model where you can only make money by extending coverage to the widest range of customers and or delivering that coverage in a more efficient way.
This sentence confines each insurance company into a defined sandbox for each plan they offer. They have at most fifteen cents of each premium dollar to devote to administration, marketing, executive compensation and profit, the other eighty-five cents, or possibly more HAS to be paid out in the form of claims or be rebated back to the insured individual or family. There are ways to game this system in ways that boost profit, for example insurance companies and medical providers can collude to provide MORE treatment than actually needed. But nobody makes money by providing LESS. Today the perfect insurance pool is one of young and healthy people who are unlikely to make claims. Under HR3976 that is a path to starvation for insurance company fat cats, no claims not only means having to rebate the difference, it is proof positive that your MLR is set too low to start with, meaning that when the plan comes up for contract renewal the Health Choices Administration might require lower premiums for the overall plan, after all why should you be paid 15% simply for collecting premiums and rebating most of it back.
In the original House Tri-Committee Bill this language was included in Sec. 116 and I blogged on it at Angry Bear a couple of times starting in July referring to that, the first time with Sec. 116: Golden Bullet or Smoking Gun and introduced it as follows:
But in this post I want to explore one provision that seems to have contributed to this outcome. Now there has been much wailing and gnashing of teeth among the Single Payer Now! contingent that HR3200 with or without a public option just is a huge windfall to the private insurance companies by providing them with a individual mandate that delivers millions of new customers without cost controls with the end result that insurance companies will just cherry pick their way to billions in profits. Now if they would have paused for a second to wonder why people like Kennedy and Waxman would just sell them out this way they might have been tempted to examine the bill language. But since there was no such pause I guess I will have to step in. So in re-examining the bill yesterday I came across this section whose import I had kind of missed before.But the Single Payer Now! folk have continued to skip right over this sentence and remain blind (willfully or not) to its implications.
http://edlabor.house.gov/documents/111/p df/publications/AAHCA-BillText-071409.pd f pg. 24-25
Under HR3962 you have to have enough sick people making enough claims to keep your payout at at least the 85% level. And the only way to get higher premiums and so make your 15% sandbox bigger in dollar terms is to find a way to deliver even more care to justify the rate increase. Or of course you can work within your existing sandbox in ways to deliver that care with less administrative costs, but none of that cost saving can come by decreasing claims approved overall, ultimately that just serves to squeeze down the size of your sandbox.
Now there are ways to game the system by colluding with providers to provide more expensive and perhaps unnecessary care and so expand the size of the 15% sandbox. That is why the Public Option is so important, it provides a control against which greedy insurance companies can simply price themselves out of the market, at some point smaller employers will jump ship to the less expensive plan. The combination of a set MLR plus the Public Option forces insurers to compete for volume on the basis of service and price, a business model about 180 degrees from the current model based on predation and service denial.
Most of the inflammatory labeling directed at this plan from the left, and some of you people are pretty vitriolic, simply is doused on encounter with this single sentence and the largely self-regulating system it sets up (because the information needed to calculate a given plans MLR is already in IRS, SEC and shareholder reporting).
I have been poking at this language since the bill was first introduced and still haven't come up with any significant flaws. What did I miss?