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Dangers of mandating medical loss ratios

John R. Graham of the Pacific Research Institute discusses the harms of the medical loss ratios mandated in ObamaCare (HR 3590):

One of the ways in which ObamaCare will reduce individuals’ and businesses’ choices of health insurance is through regulating the Medical Loss Ratio (MLR), a relatively simple concept: Take the amount of dollars an insurer spends on medical care and divide it by the total premiums. For example, if an insurer earns $10 million in premiums and spends $8.5 million on medical claims, its MLR would be 85 percent. Under ObamaCare, policies that cover large businesses will have to achieve an MLR of 85 percent, while those for small businesses and individuals will have to achieve an MLR of 80 percent. That shouldn’t be too hard, should it? …

“The Medical Loss Ratio is an accounting monstrosity that enthralls the unsophisticated observer and distorts the health policy discourse,”2 explains professor James C. Robinson of the University of California, Berkeley. This “monstrosity” emerges for a number of reasons, according to the professor. …

Narrow networks obviously have fewer administrative costs than broader networks, but patients appear to value broader networks nevertheless. …

Regulating the MLR is also deadly for consumer-directed plans, which are becoming increasingly popular. …

MLRs are irrelevant to the insured and their employers, who actually choose health plans based on other criteria—likely invisible to politicians and regulators. …

To prevent [harms from mandated medical loss ratios], states should follow the example of Minnesota and not apply for federal grants to establish exchanges.

Read the whole article: ObamaCare Will Dramatically Reduce Choice in Private Insurance.

At Forbes, Avik Roy also discusses medical loss ratios:

Imagine if you ran a business, and one day the government told you that you would be fined if you: (1) minimized unnecessary expenses; (2) hired workers to specialize in customer service; (3) invested resources in order to ensure you wouldn’t get victimized by fraud. What would you do? Think quickly: because three months from now, this very system will be the law of the land for our nation’s health insurers.

Read the rest of the post:  How ObamaCare May Disrupt Your Health Plan.

(via FIRM)