A Small Victory

The U.S. House Energy and Commerce Health subcommittee approved a small change this week in the Affordable Care Act that is a victory for insurance companies. Although many health advocates illustrate insurance companies as the big bad wolf in American healthcare, they are a vital business in the market for better health. Under the Affordable Care Act, the Obama administration attempted to regulate the insurance industry by requiring a certain percentage of people’s yearly premiums be used for the payment of health services and the improvement of quality. If the insurance company does not meet that percentage, they must reimburse the consumer the amount they essentially overpaid. The government has decided to evaluate insurance activities by measuring a medical loss ratio (MLR), which is calculated as any payment for health services and activities that improve health care quality divided by premium earnings  (less federal and state taxes, regulatory fees, and any other adjustments as allowed). That percentage calculation must be at least 80% for individual and small groups (1-100 employees) and 85% for large groups. Many people argue that by calling it a medical loss ratio indicates that the insurance company no longer has the right mission in mind, and that any money they have to pay out for medical services for their customers is considered a “loss.” Yet, insurance companies are a business that creates profit and loss, and in terms of money terms, the medical loss ratio is labeled appropriately.

Obviously, the MLR calculation leaves a lot of room for dispute. What constitutes as an activity that improves health care quality is debatable, and it is probable that we will be arguing over the specifics of the MLR for months to come. Yet under the current law, insurance agents and brokers fees were considered administrative costs, and we’re counted in the calculation as part of the 20% or 15% allowable by insurance companies to keep. That means, when insurance companies are struggling to keep as much profits as they can, half a million jobs are in jeopardy, since their earnings are within the calculation. These significant worries were raised last year in a hearing before the subcommittee, and this past Tuesday, the Health subcommittee voted to rightfully eliminate the insurance broker commissions from the MLR calculation. However small, this improvement will help preserve people’s livelihood and continue the mission to improve the Affordable Care Act. The MLR calculation is a complicated number, and will invite much controversy in the future, as Health Affairs affirms that the MLR “regulation will have a significant impact on medical care costs, consumers’ premiums, and the kinds of health care services that insurance companies will cover in the future.”