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MLRs Didn’t Change After Reform, So What?

By March 27, 2015Commentary

Every now and then I read something that really kind of steams me, often by people with an obvious ideological bent.  Steffie Woolhandler and David Himmelstein are two longtime academic boosters of a single-payer plan and they have done their best to issue as much misleading research as possible in support of that plan.  The most-recent is a pointless analysis of medical loss ratios at major insurers before and after the reform law was enacted.  (MLR Brief)   Medical loss ratio is  basically designed to determine how much of an insurer’s spending from a premium dollar actually goes to pay for health care.  There can be a lot of arguing about what is defined as a health care expense, for example should utilization management or quality improvement activities fall into that bucket.  In any event, the reform law requires that for small group and individual policies, the ratio be no more than 80% and for large groups, 85%.  The “researchers” examined SEC filings from nine major insurers and attempted to make adjustments to compare MLRs before and after reform.  They found that the weighted average MLR was 83% before and after.  They were disappointed because they thought the reform law would reduce administrative spending and profits and raise MLRs.

Where to begin.  First, the reform law merely nationalized the already widespread regulation of MLRs and it used as standards what was already the most common standard across the states.  So there was no expectation that there would be a drastic or even any change in MLRs because of the law.  Secondly, the National Association of Insurance Commissioners has worked on this issue for a long time and its work on defining MLR calculations was basically adopted by HHS.  Third, why would you use SEC filings to examine MLRs, when there are very specific filings for every health plan in every state, on NAIC forms, that give that information.  That would seem to be a more accurate approach.  Fourth, a weighted average MLR doesn’t tell you much, you should look at each product line in each state.  And finally, these academic nitwits can’t resist taking their usual inane shot at commercial insurers overhead on a percent basis being six times higher than Medicare’s, which is an absurd comparison, since per capita Medicare health costs are far higher than those for commercial populations.  A more interesting question would be why Medicare Advantage plans are able to have per capita health spending below fee-for-service Medicare and make a lot of money doing that.

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