Most important AND most overlooked sentence in HR3962

(a) GROUP HEALTH INSURANCE COVERAGE.--Title XXVII of the Public Health Service Act is amended by inserting after section 2713 the following new section:
``(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.
Discussion in extended entry and comments.

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. df/publications/AAHCA-BillText-071409.pd f pg. 24-25
But the Single Payer Now! folk have continued to skip right over this sentence and remain blind (willfully or not) to its implications.

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?

Tags: hr3962, medical loss ratio (all tags)



who would enforce that provision?

If it's supposed to be the state insurance commissioners, I question whether they would really do the job in a lot of states.

by desmoinesdem 2009-11-11 11:34AM | 0 recs
Re: who would enforce that provision?

Sounds like HHS determines how the rebates happen procedurally.  But if an insurer just flat-out refused to offer rebates, I don't see any obvious reason why an individual policyholder wouldn't have the right to sue.

by Steve M 2009-11-11 11:39AM | 0 recs
And I don't see any reason

Why that plan wouldn't have its MLR lowered the next time it came up for renewal and so get squeezed forever.

There is probably some specific enforcement language in the bill, mostly the enforcement of the various bill provisions are done through the tax code. Here maybe it is more likely to be enforced through the licensing process, it would certainly hurt if the State Insurance Commissioner simply yanked your license to sell all product lines.

by Bruce Webb 2009-11-11 01:06PM | 0 recs

I think some state insurance commissioners take their jobs a lot more seriously than others.

by desmoinesdem 2009-11-11 02:28PM | 0 recs
the little sentence that could

You've done an excellent job bringing this to our attention.  Thanks.

But it worries me a little that no one else is touting this.  Obama, Reid, Pelosi, Frank, Waxman, Weiner, Baucus (or for that matter Boehner, Beck, Limbaugh, etc).  Is it too complicated?  Is there a tacit understanding that it will be watered down over time?  Is 85% the approximate norm now?

by the mollusk 2009-11-11 12:44PM | 0 recs
The industry norm is down

from over 90% a few years ago to just under 80%, last I heard. A commenter on dKos said 70-75% and I wouldn't dispute that. Insurance companies openly brag to stockholders about how they are driving MLR down and are openly shooting for sub 70%. They try to pass this off as simply reflecting medical inflation but that is ridiculous special pleading, all payments to providers being on the other side of the equation.

As to why nobody is touting this you got me. I have been pushing it at Angry Bear for months.

by Bruce Webb 2009-11-11 01:10PM | 0 recs
Re: The industry norm is down

My own hack thoughts are this:

Liberals won't mention it because they are reaching for the public option and don't want to give folks a reason to go squeamish on it.

Centrists won't mention it because this is the real reason many of them are opposed to the bill and they know it would be popular (if anyone could understand it).

Conservatives won't mention it because it doesn't fit their narrative.  It's a brilliant little piece of legislation that could actually make this thing work.

Obama - That's the one that confuses me.  Unless he's actually a Liberal disguised as a President.  He talks like he just wants the thing to move forward, but maybe he's reaching for the public option too.  Who knows?

by the mollusk 2009-11-11 01:20PM | 0 recs
Change 'public option' to 'single payer'

And you would capture the position of some liberals. But I have come to the sad conclusion over the last dozen years that everyone in DC and NYC media has convinced themselves it is someone else's job to do the reading.

My main issue for the last decade plus has been Social Security and it has become all too clear that what passes for reporting is to read and repeat the Press Release while deep reporting consists of reading the 15 page Summary. Concepts like 'Low Cost Alternative' might as well be locked in a Top-Secret Compartmentalized safe in the CIA for all the light of day they typically get.

It seems that people saw that the original Tri-Committee Bill clocked in at 1016 pages and the final version at 1990 and went 'eeek'. And the same happened with the Stimulus Bill. Well it is amazing how much white space and boilerplate are in these things, the important pieces just are not that hard to access.

by Bruce Webb 2009-11-11 02:25PM | 0 recs
Re: Change 'public option' to 'single payer'

I don't have a lot of experience reading bills, but the few I have read go pretty quickly.  This isn't Herman Melville.  Like you say, it's a lot of boilerplate.  

I would guess that ten people splitting duties equally could cover the whole 2000 page bill in a day.  Leave the next day for briefings and the third morning for review and consideration and you'd have a good understanding of the bill in less than three days.

by the mollusk 2009-11-12 09:08AM | 0 recs
To mention or not to mention

First of all, add my thanks and kudos to the others here for finding and sharing this.  My reactions were:

1/  Exuberance that there really might be a limitation on the profits enjoyed by the industry given the mandatory coverage.

2/  Yes, why was this not reported???

3/  Wait a minute.  Maybe we should stay silent on it?  Would exposure of it help or hurt?

4/  This would explain all the fight to date when it otherwise seemed like a boon to the industry.

And thank you again!

by LibCrystal 2009-11-12 02:44PM | 0 recs
Well keeping it quiet

might be good.

Because it looks like someone screwed the pooch on the actual bill language in the version passed by the House.

In the Tri-Committee Bill as passed out of Committee this language was included in Sec 116 and was clearly meant to apply to the Exchange and not coming into effect until Jan 1, 2013.


(a) IN GENERAL.--A qualified health benefits plan shall meet a medical loss ratio as defined by the Commissioner. For any plan year in which the qualified health benefits plan does not meet such medical loss ratio, QHBP offering entity shall provide in a manner specified by the Commissioner for rebates to enrollees of payment sufficient to meet such loss ratio.

(b) BUILDING ON INTERIM RULES.--In implementing subsection (a), the Commissioner shall build on the definition and methodology developed by the Secretary of Health and Human Services under the amendments made by section 161 for determining how to calculate the medical loss ratio. Such methodology shall be set at the highest level medical loss ratio possible that is designed to ensure adequate participation by QHBP offering entities, competition in the health insurance market in and out of the Health Insurance Exchange, and value for consumers so that their premiums are used for services.

Clear as day "participation by QHBP offering entities", "in and out of the Health Insurance Exchange", a methodology yet to be developed, everything here is focused on what the bill defines as 'Year 1', 2013, and projected forward. Now while technically the Health Insurance Exchange is created on enactment of the bill this just allows it to gear up and among other things negotiate with insurers in the period between enactment and 'Year 1', there is nothing to enroll in prior to that point. And the initial section of that bill was clearly forward directed as well:
(a) PURPOSE.--The purpose of this title is to establish standards to ensure that new health insurance coverage and employment-based health plans that are offered meet standards guaranteeing access to affordable coverage, essential benefits, and other consumer protections.(b) REQUIREMENTS FOR QUALIFIED HEALTH BENEFITS PLANS.--On or after the first day of Y1, a health benefits plan shall not be a qualified health benefits plan under this division unless the plan meets the applicable requirements of the following subtitles for the type of plan and plan year involved:
(1) Subtitle B (relating to affordable coverage).
(2) Subtitle C (relating to essential benefits).
(3) Subtitle D (relating to consumer protection)
Once again clear as day "new", "on or after the first day of Y1". Everything is forward looking, and old Sec 102 explicitly shelters, with certain restrictions "grandfathered Insurance".

So I stand by my analysis of last July and hold it valid right up to the introduction of the Pelosi version on Oct 29th. When I saw the new version of the bill I noticed that things had been moved around and some new provisions added but the only thing I saw fundamentally changed from Sec 116 in the Tri-Committee Bill to Sec 102 in the Pelosi bill was the addition of the "not less than 85%" langauge, and so giving some specificity to the language of Sec 116. Which was all to the good. What I didn't see that the new bill inserted a new Title I that moved protections originally intended to govern "new" "Qualified Health Benefit Plans" offered through the Exchange starting in Jan 1, 2013, up to Jan 1, 2010 and applied them retroactively to existing plans. Okay fine, nothing wrong with preventing insurance companies from not being able to deny coverage to people with pre-existing conditions starting five weeks from now. But in regards to the specific provisions of Sec 102 (a) that set out the premium controls via MLR that in Sec 116 of the Tri-Comm bill clearly apply to the exchange, some goofball inserted this language in Sec 102 (c)

(c) SUNSET.--Subsections (a) and (b) shall not apply to health insurance coverage on and after the first date that health insurance coverage is offered through the Health Insurance Exchange.
Since there is no practical way to apply the provisions of Sec 102 (a) to the current market, not least because the methodology for setting MLRs is not yet developed and that it is both impractical and probably illegal to order companies to pay rebates post-facto, sunsetting it prior to the offering of "new" coverage through the Exchange makes no fucking sense at all.

I am hoping this is a correctable mistake, but right now I fell like a guy that stepped on a missing stair. I hope and believe that some version of the original Sec 116 and its regulatory measure makes it into the final bill and that someone simply deletes Sec 102 (c) and its Sunset, but right now I don't quite know what to think.

by Bruce Webb 2009-11-13 08:59AM | 0 recs
Should I change the title of the post?

To "SECOND Most important And SECOND most overlooked sentence in HR3962"?

Cause I sure wish I hadn't overlooked Sec 102 (c) prior to putting this up.


by Bruce Webb 2009-11-13 09:12AM | 0 recs
Re: The industry norm is down

I guess my question is why this only applies to group coverage.  We need to contain costs everywhere, of course, but one of the biggest issues is the lack of affordable individual coverage.

by Steve M 2009-11-11 02:37PM | 0 recs
It does. Though a good question.

Good catch, I had to go back to the bill:

``The provisions of section 2714 shall apply to health
insurance coverage offered in the individual market in the
same manner as such provisions apply to health insurance
coverage offered in the small or large group market except
to the extent the Secretary determines that the application
of such section may destabilize the existing individual market.''

I am not sure what concern is being addressed here, but it does seem that the Individual market is characterized by higher MLRs in general which conceivable could cause some insurers simply not to offer it at all if held to the exact same MLR as group plans.

by Bruce Webb 2009-11-11 03:38PM | 0 recs
This clause

which, as you pointed out, is generally overlooked, would go a long way at addressing my concerns (which I have kept mostly to myself).  

by Ravi Verma 2009-11-11 12:56PM | 0 recs
Re: Most important

Whatever. We need to keep the public option provision and get rid of the pre-existing condition b/s that ins. companies currently use.  If we don't and couple that with mandated coverage for everyone then the party in an effort to deliver reform will have taken a major catastrophic situation and somehow made doubly worse. Anyone who can't see that is either a dishonest politician (aka Republican or Democrat in Republican's clothes) OR an idiot.  I don't want to be associated with either and the Reids of this party disgust me.

by jrsygrl 2009-11-11 03:48PM | 0 recs
Wow, good catch.

Now that's blogging!

Happy to see this sort of thing cross-posted to the Moose any time you feel like stopping by.

You should share your Angry Bear link as well (  Wish I'd seen it earlier, looks like an interesting conversation you have going there.

by chrisblask 2009-11-12 01:15AM | 0 recs
Re: Wow, good catch.

The Moose being

by fogiv 2009-11-12 06:29AM | 0 recs
recommended and linked

at Bleeding Heartland.

by desmoinesdem 2009-11-12 03:48AM | 0 recs
Re: recommended and linked

Likewise:   Moosed

by chrisblask 2009-11-12 10:01AM | 0 recs


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