NCPA - National Center for Policy Analysis


May 18, 2010

President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors.  It's clear that this promise cannot be kept.  Insurers and physicians are already reshaping their businesses as a result of Obama's plan, says Dr. Scott Gottlieb, a former official at the Centers for Medicare and Medicaid Services, a fellow at the American Enterprise Institute and a practicing internist. 

The health reform law caps how much insurers can spend on expenses and take for profits, explains Gottlieb: 

  • Starting next year, health plans will have a regulated "floor" on their medical-loss ratios, which is the amount of revenue they spend on medical claims.
  • Insurers can only spend 20 percent of their premiums on running their plans if they offer policies directly to consumers or to small employers.
  • The spending cap is 15 percent for policies sold to large employers. 

This regulation is going to have its biggest impact on insurance sold directly to consumers -- what's referred to as the "individual market."  These policies cost more to market.  They also have higher medical costs, owing partly to selection by less healthy consumers, says Gottlieb. 

Finally, individual policies have high start up costs.  If insurers cannot spend more of their revenue getting plans on track, fewer new policies will be offered, says Gottlieb. 

Restrictions on how insurers can spend money are compounded by simultaneous constraints on how they can manage their costs, says Gottlieb: 

  • Beginning in 2014, a new federal agency will standardize insurance benefits, placing minimum actuarial values on medical policies.
  • There are also mandates forcing insurers to cover a lot of expensive primary-care services in full.
  • At the same time, insurers are being blocked from raising premiums -- for now by political jawboning, but the threat of legislative restrictions looms. 

Source: Dr. Scott Gottlieb, "No, You Can't Keep Your Health Plan," Wall Street Journal, May 18, 2010. 

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