Rebates for consumers or more profit for insurers?

The Oklahoma Insurance Department (OID) has asked the federal government to waive a key provision of the new federal health care law set to go into effect in 2012.  OID wants to exempt insurers in the state from adhering to a ‘medical loss ratio’ (MLR) requirement that they spend at least 80-85 percent of premiums directly on medical care, or else rebate consumers.  Oklahoma Policy Institute has recommended to HHS that they deny this request and allow full enforcement of an important and reasonable consumer protection that will put millions of dollars back in the pockets of Oklahoma consumers.  This post explains the simple rationale behind our recommendation: Why should profitable insurers get a free pass to cost-shift their administrative expenses onto already strained household budgets?

Insurance companies spend your premium dollars on: (1) your medical care and (2) non-medical administrative expenses like executive salaries and bonuses, sales agent commissions, supplies, advertising and profits.  The MLR is a straightforward calculation of how your health insurance premiums are spent.  It ensures that insurance companies can’t continue to raise premiums and then spend an alarmingly low proportion of those premium dollars on medical care.  Under the new 80 percent MLR, between $12.2 – $12.4 million will be returned to Oklahoma consumers during 2011, $3.9 million in 2012, and $0.4 million in 2013.  Instead, the Insurance Commissioner wants HHS to waive this requirement and reduce the minimum medical loss ratio in the individual market to 65 percent for 2011, 70 percent for 2012, and 75 percent for 2013.

The Oklahoma Insurance Department (OID) has failed to make the case that our individual insurance market will be destabilized by enforcing the 80 percent ratio.  We have a competitive market, with nine participating insurers, and none have given notice that they intend to cease providing coverage in the individual market.  The Government Accountability Office (GAO) reports that insurers’ average MLR in the individual market is 79 percent, making the 80 percent benchmark  appropriate and attainable. In fact, seven of the nine insurers in Oklahoma’s individual market are already pricing for an 80 percent MLR for 2012.

A proposed starting loss ratio of 65 percent is extremely low.  Only one insurer in the Oklahoma individual market would fall short of this target for 2011.  HHS may grant waivers to the MLR only if certain conditions are present, and Oklahoma’s request cannot be justified under any of those criteria:

• There is no evidence that any insurers have exited the state or will exit the state or cease offering coverage absent an adjustment.
• There is no evidence that any enrollee will lose coverage because of insurers exiting the state.
• The adjustment request makes no claims that Oklahoma health insurance consumers will lose access to agents and brokers if an adjustment is not granted.  While two letters from agent and underwriter associations support the request, neither offers evidence that agents and brokers are abandoning the individual health insurance market.
• Alternative coverage is available to Oklahoma insurance consumers if an insurer exits the state.  Furthermore, Oklahoma operates a temporary high-risk pool for Oklahomans who lose coverage if an insurer withdrew from the market and could not find substitute coverage because of pre-existing conditions.

Seventeen states have filed waiver requests and seven have been approved.  Delaware, North Dakota, Louisiana, and Indiana were denied a waiver because they failed to demonstrate that the regulation would destabilize the insurance market in their state.  HHS should deny Oklahoma’s request on the same grounds.  Oklahomans stand to lose around $12 million in 2011, and more in future years if HHS grants the waiver.  Consumers would also lose out on any effect that the rebate requirement would have on driving down premiums for the next three years.  The waiver is unnecessary and granting it would take money out of the pockets of Oklahoma consumers at a time when they need it the most.