NCPA - National Center for Policy Analysis


July 30, 2010

The most important element in implementing ObamaCare will be the requirement for health insurers to meet what is called a medical loss ratio.  This requires health insurance plans to split the dollars they receive from insurance premiums into two buckets, say Newt Gingrich, former Speaker of the House and founder of the Center for Health Transformation, and David Merritt, vice president and national policy director at the Center for Health Transformation. 

For instance: 

  • Depending on the type of insurance coverage, 80 percent to 85 percent of premiums must be spent on either medical services or "activities that improve health care quality."
  • This bucket includes everything from doctor visits, hospital stays and surgery to prescription drugs and medical equipment.
  • It also includes programs to help patients cope with chronic diseases and reminders to take prescribed medications.
  • The remaining 15 percent to 20 percent of premiums falls into a smaller bucket of "administrative" expenses like overhead, marketing, profits, compensation and agent commissions.  

Regulators will soon decide which specific activities fall into which bucket: 

  • Forcing a wide range of services and benefits into the smaller administrative bucket puts them in direct competition with other critical aspects of a health insurer's business, as health plans will be compelled to cut back on those activities labeled "administrative" to meet new federal requirements.
  • Plans will be forced to choose between priorities that benefit patients -- such as preventing health care fraud and reducing unnecessary services -- and other priorities like creating new technological innovations or upgrading equipment.  

The implications for patients are enormous, say Gingrich and Merritt. 

Is giving patients access to a team of nurses to discuss and monitor their health really an administrative function?  What about a fraud-prevention program that targets criminal providers who endanger patient care?  State regulators at the National Association of Insurance Commissioners have indicated that they think both are.  And bureaucrats at the Federal Department of Health and Human Services will rely heavily on their recommendations. 

Bureaucrats now have the power to force private health plans to make business decisions based on regulations rather than on what is best for company or customer health. This kind of governmental micromanaging of health care -- seen nowhere else in our business sector -- is anathema to the free market.  More importantly, it endangers the lives and well-being of millions of Americans, say Gingrich and Meritt. 

Source: Newt Gingrich and David Merritt, "Who Decides on Health-Care Value?" Wall Street Journal, July 29, 2010. 

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