Health Law Saves Consumers by Requiring Insurers to Spend Premium Dollars on Medical Care

By Chris Lilienthal, Third and State

Medical Loss Ratio ExplainedA key reform in the Affordable Care Act requires health insurers to spend 80% to 85% of premium dollars directly on medical care or quality improvement expenses as opposed to other administrative costs, marketing, or profits. If an insurer does not meet the standard, it must provide rebates to consumers or businesses.

Insurers issued $1.1 billion in rebates to nearly 13 million consumers for 2011, the first year the rule was in effect, and are expected to return more than $500 million in rebates to 8.5 million consumers for 2012. The 2012 figures include nearly $6.9 million that will be returned to 123,581 Pennsylvania consumers — an average of $77 per family.

These rebates are among the more tangible ways that consumers have benefited from the law so far, but it is important to remember, as researchers with the Kaiser Family Foundation recently noted, that rebates represent only a portion of the savings to consumers from this provision, known formally as the "Medical Loss Ratio" Rule (MLR):

The primary role of an MLR threshold is to encourage insurers to spend a certain percentage of premium dollars on health care and quality improvement expenses (80 percent in the individual and small group market and 85 percent in the large group market). The MLR rebate requirement operates as a backstop if insurers do not set premiums at a level where they would be paying out the minimally acceptable share of premiums back as benefits…

Consumers and businesses, therefore, can realize savings in two ways as a result of the MLR requirement: by paying lower premiums than they would have been charged otherwise (as a result of lower administrative costs and profits), or by receiving rebates after the fact.

A Few Cutting Remarks

Throughout the country, the taxpayers have been revolting. Shocked by the enormity of the taxpayer revolt, and the untimely retirement of several hundred politicians, today’s current legislators, civil servants, and business executives have suddenly became the “people’s champions.” In a parallel universe, we can report the following, just since the latest election:

— Congress got the taxpayers’ message, and cut tax-supported junkets to only 15 per member. “The people have spoken,” said Rep. Horace Sludgepump from the Bahamas where he was on a fact-finding tour for the Maritime subcommittee. However, Rep. Sludgepump cautions that forcing Congressmen to stay at home and work for a living could bring chaos to the nation. Nevertheless, he promises to cut expenses even further three months before the next election.

— The Department of Defense was able to significantly reduce its budget by cutting back on the hours its golf courses and officers clubs were open. Complaining about the cuts were tax-reforming members of Congress whose districts were in the golf club re-appropriation. However, they were voted down by congressmen from Iowa, Kansas, Nebraska, and South Dakota who were pleased to tell their constituents there would be new naval bases in their states.

— The Governor’s office announced that although the administration was forced to make severe cuts in education and human services, by strict cost-counting measures it was able to maintain staff salaries, and keep off the unemployment lines 125 administrative assistants, 265 executive assistants, 835 assistants to the administrative assistant, and 1,255 deputy special assistants.

— The budget cuts directly affect the nation’s 200,000 homeless veterans. But, there’s an upside to this. Sixty-three-year-old Cpl. Willie Joe Lumpkin, a veteran of the Vietnam and Persian Gulf wars, re-enlisted. “After being downsized three times in the past decade and having the bank foreclose on my mortgage,” says Lumpkin, “at least I now have a bed and meals.” Lumpkin is expected to have shelter in Afghanistan for at least the next year.

— The president of Mammoth State University said that it too will cut expenses. Beginning next semester, the university will eliminate the departments of history, journalism, and philosophy, recruit high school students with at least a “C-” average who are willing to pay the increased tuition rates, add low-paid graduate assistants to teach megasection classes formerly taught by full-time professors, and cut the library budget by 35 percent. When asked if those changes weren’t severe, the President replied, “We tried to be as humane as possible. We allowed our 1,249 administrators to keep their jobs, have maintained our $6 million football program without restriction, and added three more PR people to better explain the mission of the university.”

— Slagheap World Airlines announced that in the spirit of national cost cutting, it would cut back its cockpit crew to one pilot and eliminate flight attendants, meals, and life rafts. “This way,” said the president, “we won’t have to penalize our loyal stockholders by lowering our return on investment.”

— The Association of American Landlords, which had lobbied extensively against annual safety inspections and property tax increases because they would be unfair to their tenants who would be required to pay higher rents, has also made concessions. Beginning September, in the spirit of tax reform, the landlords will sub-divide all apartments, and raise rents only 10 percent. “Sharing a bathroom and kitchen will bring people closer together,” said the Association president from his McMansion Media Room.

— Newspapers have been swept up in the spirit of reform. At the Daily Bugle, publisher Ben “Cash” Fleaux, from his villa in Bermuda, announced that his newspaper was forced to eliminate stories about local government, consumer and environmental reporting, and news of the courts when it cut its editorial staff by half in order to maximize profits during the Recession. To compensate, the Bugle is running more PR releases and added more stories about celebrities in rehab.

— The medical insurance industry, in keeping with the spirit of cost cutting, today announced it was cancelling coverage for 25 percent of its subscribers. “We hated to do it,” said an insurance spokesperson, “but some people insist on getting catastrophic illnesses, and that’s unfair to the rest who are healthy and don’t apply for benefits.”

— Finally, Dr. Guy Nacologist, the state’s richest obstetrician, announced that in keeping with the spirit of tax reform, he was now requiring all his patients to deliver their babies in eight months, thus saving a full month. When asked if he had also considered lowering his fees, he looked at the reporter, and then pointedly proclaimed that with the increase in country club fees, his patients were lucky he didn’t raise their costs by a similar amount.

[Walter Brasch says that since columnists are the soul of a newspaper, they should be downsized only after the last editor shuts off the lights in the newsroom. He reminds his readers that without their support, he’s likely to become unemployed and a burden on their hard-earned tax dollars. His next book is Before the First Snow: Stories from the Revolution, available at amazon.com and other stores after June 20. Also check out his YouTube video.]