HEALTHY VISION 2020 I INSURANCE MARKETS SECTION 8
Establish Fair and Transparent Insurance Markets for Patients, Employers, Taxpayers, and Physicians
Texans are spending more money on health insurance each year but have no idea how the health plan is spending their premium dollars. Is their premium going toward their actual medical costs or to the insurer’s bottom line? Why aren’t they protected from questionable insurance tactics that result in loss of coverage and increased out- of-pocket costs? For many employers and their employees, yearly health insurance premium increases are unsustainable. No one feels this challenge more acutely than local neighborhood businesses such as family-owned restaurants, mechanic shops, and physician practices.
Although the U.S. Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act (PPACA), the law faces another test in the November presidential and congressional elections. If Republicans capture the White House and enough votes on Capitol Hill to repeal the law, TMA recommends a few provisions in the PPACA for the Texas Legislature to consider as state law. These provisions, which have already proven to be effective, would not cost the state budget a dime, but in fact may save the state money in the long run by allowing people with health insurance coverage to keep that coverage and keep it affordable. That would reduce the likelihood of their falling back onto the rolls of the uninsured.
Require transparent insurer medical loss ratios
To keep insurance companies accountable to patients, it is important to focus on the medical loss ratio (MLR), how it is calculated, and how the health plans report it. The insurance industry uses this number, or ratio, to show its profitability to
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its shareholders. The higher the ratio, the better for the insured; the lower the ratio, the better for the shareholder. So how the industry defines that share of the premium dollar that actually goes for health care becomes important.
In 2010, the five largest insurers collected $7.7 billion more in premiums than the year before, but they did not increase spending on patient care by nearly as much. Insurers have been free to spend as much of the premium dollar as they please on CEO pay, marketing, administration, lobbying, and a care-denial bureaucracy. The share of premiums Cigna spent on medical care in 2010 (the medical loss ratio) dropped to 80.1 percent from 83.9 percent the year before — a decline worth $709 million, according to a congressional report. Aetna also trimmed its health care costs, spending only 82.3 percent of premiums on patient care, down from 85.2 percent the year before. That change was worth $708 million for Aetna. UnitedHealthcare and WellPoint also reported lower spending on care. As illustrated in the table at right, although the MLR change appears small, it translates into millions of dollars for the insurance companies.99
The PPACA places much emphasis on health plans meeting certain MLR thresholds. Plans in the large-employer group market that spend less than 85 percent of their premiums on medical care and quality improvement activities, and plans in the small-employer group and individual markets that spend less than 80 percent, must give rebates to enrollees based on their 2011 MLR reports. To impose these thresholds, regulators had to agree on a standard definition of the term and specify how plans should classify spending on certain activities.
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