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If you haven’t already received your Medical Los Ratio Information letter from your insurance company, you should within the next couple weeks.  Mine says that “ The Affordable Care Act requires health insurers in the individual and small group markets to spend at least 80% of the premiums they receive on health care services and activities to improve health care quality. (large group is 85%)  This is referred to as the Medical Loss Ratio or the 80/20 rule.  If a health insurer dose not spend at least 80% of the premiums it receives on health care services and activities to improve health care quality, the insurer must rebate the difference.”

Great sounding idea, right?  We ensure that we are not being gauged by the insurance companies and that our premiums aren’t going to pay outrageous salaries or bonuses!  Well unfortunately, this change may not play out for the consumer the way it was intended and I would like to explain why.

So what is really going to change?  For starters, after months of debate, the Department of Health and Human Services (HHS) has agreed that Agent commissions will now be lumped into “administrative cost,” which will surely result in a reduction in agent revenue and an unexpected increase to insurance company administrative expense.  One thing I can tell you about any sales position, is that sales folks will gravitate to wherever they have the most opportunity to succeed.  Cut commissions and agents will move on to other opportunities, creating even more administrative workload (expense) for the insurance companies.  For a perfect case study of the affects of government overregulation and reduced commissions, take a look at the Medicare market place.

Of course health insurance will survive without agents, (albeit not smoothly) and an example that hits the consumer a little closer to home, consider what will happen to the growing wellness initiatives and disease management segments currently offered by insurers.   Right now, if you find out you have diabetes for example, you are usually contacted by a nurse representing the insurance company, to see if you need any help in

managing your new disease.  That was the case with most major illnesses, high risk pregnancies, etc….  Of course those were the days when insurance companies had an incentive to keep your claims as low as possible.  Up until now, the insurance companies were aiming for a 60% to 75% loss ratio and they reaped the rewards if everyone had a good year.  Even though wellness initiatives and disease management are not considered “administrative,” and will be part of the 80%, where’s the incentive to offer those programs and improve health?  Meaning, if the programs work the way they are intended, aren’t the insurance companies forcing themselves into rebates or lower premiums, ultimately lowering their administrative budgets?  One could argue that the insurance companies actually have a financial incentive to let your claims grow.

Taking this a step further, where is the incentive for an insurer to adopt a state of the art software that reduces fraud, or convert to a system that pays claims quicker, or pay more for any administration that takes time to reduce cost?  Any additional administrative expense puts the insurer at risk and it seems that inexpensive admin and high claims is the logical equation.  At the end of the day, if claims are up, premiums will increase and as premiums increase so will the administrative budgets and the salaries and bonuses that this whole regulation was created to reduce.  All the while, we have taken a step backwards and the consumer is left with less benefit at a higher price tag.  As for the free market place keeping premiums low?  Insurers all over the country have decided the new regulations are too much and are getting out of the health insurance market place all together.  Here in MN, we still have our four not for profit insurance carriers trying to conform, but we’ll see how it plays out, especially since HHS estimates about $3 billion in rebates nationwide, between 2011 and 2013.

Of course our hope is that this change works for the consumer in the way it was intended, but so often when politicians make changes they don’t understand, we are forced to sit back as they learn hard lessons.  We will keep you updated as this issue continues to evolve.



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