Last night, former insurance industry executive Wendell Potter appeared on Countdown, claiming that the industry could get around the requirements on the medical loss ratio through accounting tricks. To recap, under the Senate bill, the insurance industry would be required to spend 85 cents of every dollar in the large-group market, and 80 cents in the small-group and individual markets, on medical care, rather than overhead, administrative costs, salaries, marketing and profit.
An article at Smart Money magazine suggests that the insurance industry is already looking for ways to wiggle out of this requirement:
It’s not all good news for insurers. The Senate bill would impose a “medical loss ratio” of 80% to 85%, depending on the market segment, meaning insurers would have to spend 80 to 85 cents of each dollar they collect from plan members to provide health care. Carl McDonald, a health care analyst with Oppenheimer & Co., an investment bank, wrote in a note to clients Monday that the number was “workable” for insurers, especially if they can label certain items that count as corporate expenses for accounting purposes as health care for purposes of meeting the spending minimum.
Note that McDonald used the qualifier “if.” Clearly there are accounting tactics that can be used to get around the MLR. Countdown reported that Aetna had to acknowledge that they fudged their MLR numbers in the small-group market. And Potter, in his appearance, noted that insurance companies believed that they could categorize certain spending in certain areas to “live” with an 85% MLR.
There’s nothing specifically in the bill allowing this kind of fudging. But it would only work if there were strong regulations and strong transparency, enforcing the medical loss ratio and ensuring that the data about insurer spending is clear. Asked about the enforcement of this rule, Potter said:
POTTER: No, it’s not clear to me, and there’s, and that’s a very important thing. We need to know who will be doing the regulating, who will be defining the terms, who will be setting the rules. And I don’t think that we have that clarity yet.
As Lawrence O’Donnell noted, there’s nobody in the federal government with the knowledge of how to determine medical loss ratios of insurance companies.
What this comes down to is that moving to a regulatory environment to manage the health care system rather than a public-private competition environment can work, but only with an actual police force. And it’s unclear where that police force is right now.
I have reached out to Sen. Al Franken, who with Jay Rockefeller was one of the two Senators most involved in creating this MLR regulation, and if I get an answer on this from him I’ll let you know.