I have in the past harshly criticized president Obama and the Democratic party for the way they excluded the single payer and public options in the health care debate as a favor to the health insurance industries and foisted on us a complicated health care reform package in the Affordable Care Act that does not address in any fundamental way some of the key problems of cost and access.
Now comes along an analysis by Rick Ungar that says that buried in that health care reform act was a time bomb that went off on December 2, 2011 that will destroy the private health insurance industry as we currently have it and set in motion a series of events that will inevitably lead to single payer. The key, he says, is
the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.
So, can private health insurance companies manage to make a profit when they actually have to spend premium receipts taking care of their customers’ health needs as promised?
Not a chance – and they know it. Indeed, we are already seeing the parent companies who own these insurance operations fleeing into other types of investments. They know what we should all know – we are now on an inescapable path to a single-payer system for most Americans and thank goodness for it.
Interestingly, the argument most often offered up in the effort to shoot down my conclusions was the position that most health insurers are already meeting, or very close to meeting, the medical loss requirements. As a result, these naysayers argued, the new MLR rules are really no big deal and there is no reason for me to suggest that the HHS regulations would have the dramatic impact I have predicted.
Many were also quick to add that the stock prices for these health insurers remain very healthy, indicating that shareholders in these companies clearly do not share my dire predictions—and the shareholders certainly should know.
But if that is the case then why, Ungar asks, are so many states requesting a waiver from these requirements from the department of Health and Human Services (HHS)?
The answer is clear. It is because the method the health insurance companies have been using to calculate their MLR – effectively throwing everything they can into the classification of an actual medical expense – is no longer going to fly and the health insurance companies know this is going to be a big problem for them.
While shareholders may be slow to pick up what is happening, likely the result of health insurance company efforts to downplay the impact of the medical care ratio requirements, the evidence makes it clear that the days of private health insurance are numbered.
Ungar points out that the Department of Health and Human Services refused a request by the state of Florida for a waiver that would prevent the insurance companies from having to return $89 million to their subscribers under the MLR requirement. Two days ago, a similar request for a waiver by the governor of Michigan was also turned down, making it the sixth state to be so denied. Indiana, Louisiana, Maine, Nevada, New Hampshire, Iowa, Kentucky, Delaware, North Dakota, Georgia, Kansas, North Carolina, Oklahoma, South Carolina, and Texas have also requested waivers. Rob Collier reports that Maine, Nevada, and New Hampshire have been approved while Iowa and Kentucky were given partial waivers for a limited time. North Dakota, Indiana and Louisiana were rejected. The list of states applying for waivers and the outcomes can be seen here.
But if single payer is the ultimate outcome, was this the intention all along? Or is this some unintended but welcome consequence of the complex legislation? The reason this matters is that if it is an unintended consequence, then the insurance industry, Congress, and the Obama administration will try to rewrite the legislation to prevent it. I have a hard time believing that the health industry with its massive lobbying efforts and a Congress and White House that is subservient to them, would not be careful to preserve their interests.
I wish I could be as optimistic as Ungar. But I am not going to allow my hopes to be raised too much.