The Obama administration on Monday outlined rules to restrict health insurers’ spending beginning next year, a key provision of the health care overhaul that aims to improve value for consumers.
The rules will have vast implications for how insurance companies spend money as well as for other aspects of the health care industry. Insurers’ worries that the Department of Health and Human Services would rule against them on a number of issues were unfounded, and many of the nation’s largest insurance companies’ stocks rose on the news Monday.
Still, liberal advocacy groups and Democratic lawmakers who backed the idea of spending requirements heralded the regulation as a crackdown on the industry and a win for consumers.
President Barack Obama, in an email released Monday, said the rules “will make our health care marketplace more transparent and ensure you get the best value for your premium dollars. And it is just one of the many parts of the Affordable Care Act that are already making our health care system stronger.”
Under the new rules, issued in the form of a regulation, most insurance companies will have to spend 85 percent of the money they collect in premiums on health care. Insurers selling to small groups or directly to individuals will have to spend 80 percent. The rest of the money can be spent on administrative costs and profit.
I went through the United Health Care 10K financial report and for the last three years their medical care ratios were 82.3, 82.0 and 80.6 percent (for the years 2009, 2008, and 2007 respectively).
Now in order to get to the 85% ratio, United Health Care can do one of three things to meet these ratios.
1) They can reduce operating expenses. Great you say? Except those clerks who actually pay health insurance claims will be fewer in number and/or competence. How anxious is a doctor going to be to treat you knowing that he probably won't get paid for six months. BTW. who won't be getting a pay raise next year? Those people in the claims office who could use the money.
2) They can pay out more for the claims. An X-ray that used to cost you $275 will now be $300. That's awesome for everyone but the insured.
3) They can raise your premiums. Think about it. Let's assume that you've cut your overhead to 17% of the 100 million in premiums you've collected and you're down to the bone. Simply raise your premiums to $110 million and your ratios are in like flint.
Needless to say, price hikes are the path of least resistance since most insurers are not out to run nice and fat overhead operations.
So doctors and hospitals can look forward to a nice raise soon.
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1 comment:
Much of the admin cost of private insurance goes to contol fraud. If only Medicare paid attention to fraud they could reduce their fraud rate below 15%. Medicare's attitude is, "Well, it's not my money, so what the hell."
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