The Medical Loss Ratio
One of the most common complaints I hear from clients at Health insurance renewal time is that they feel they are being gouged by their health insurance company. We often hear complaints that CEOs are making too much money, and thus the premium customers are paying is all going to pay one person’s massive income. I can’t help but feel sympathetic, because premiums ARE out of control, but this is not due to excessive profits, nor the CEOs income. In fact, insurance companies are forbidden from making excessive profits under a provision in the Affordable Care Act known as the Medical Loss Ratio (MLR). Insurance plans in the individual/family and small group markets must spend at least 80 percent of revenue on claims, and in the large group market, the requirement is 85 percent. The balance is allotted to reserves, overhead, payroll, and service, etc., including broker commissions. Any excess premiums must be equally divided upon members at the end of the year, and refunded to the members.
The best explanation I’ve found on the subject of the MLR has been given in great detail by The Kaiser Family Foundation, and I would encourage all Americans and physicians to read through this, because I think most people are unaware of this provision in today’s law, and the subject of excessive profits distracts us from the root cause of high insurance premiums: the cost of health care.
Insurance companies must file with their state’s division of insurance in advance of releasing their rates for the new year, and the rates must be reviewed and approved by the DOI, the regulatory authority that makes sure insurers are meeting MLR requirements.
Though well-intentioned, The MLR unfortunately provides perverse incentives for health insurers NOT to negotiate lower prices with healthcare providers, because lower prices mean lower profits.
When discussing the subject of health care reform, it’s important that we understand all of the parts of the equation. We need to be focusing on the cost of health care, because that is by far, the largest health insurance cost driver. But understand, I am not a proponent of cost controls. Rather, we need to find ways to utilize market forces to keep health care costs affordable, and that is what this website is all about, which brings me, again, to the Direct Primary Care and Direct Pay Health Care Movements.
The Direct Primary Care and Direct Pay Health Care Movements
I’m particularly intrigued by the Direct Primary Care Movement, and how employers, where most Americans obtain their health insurance, can work with Direct Primary Care providers to save money on primary care for their employees, while at the same time, give their employees access to better healthcare. Saving money on primary care and chronic care ultimately saves money on the cost of major medical insurance.
My hope is to gather more information very soon to share from a few of my doctor friends who are involved in the Direct Primary Care Movement about how they are working with employers to help them save money on health care benefits.
Doctor Keith Smith, owner of The Surgery Center of Oklahoma is a revolutionary on the subject of Direct Pay health care. I like to follow Keith Smith’s blog, as it provides a wealth of inside information for those of us who are concerned about the cost of health care in America.
Dr . Keith Smith relays to us a case study, in which his own surgery center entered into an agreement with Oklahoma County to save taxpayers $140,000 on health care!
When we put our heads together as Americans, we can solve our health Care woes. Stay tuned for more!