One of DrRich’s most dearly held theories, which he has expounded upon at length, is that the American health insurance industry supported Obamacare from the very beginning (and continues to do so) because the President’s plan offers them a graceful exit strategy from their now-defunct business model. Without Obamacare, the health insurance industry was headed toward sure oblivion. With Obamacare, they are headed toward – something else.
The remarkable and sustained actions the insurance industry took in support of Obamacare, DrRich continues to submit, is all the evidence that one should need to conclude that a deal has been struck. But even DrRich has had to admit that it has never been entirely clear what, exactly, the deal was. What were the health insurance companies promised in exchange for their support?
One obvious benefit for the insurance industry is the one last windfall they will enjoy when the individual mandate kicks in, and a few tens of millions of mostly-healthy Americans are coerced into purchasing health insurance for the first time. This windfall should not only temporarily boost the insurers’ bottom lines and their stock prices, but will likely push out for a few years the timing of the industry’s ultimate demise. So that part of the “deal” is pretty clear.
The remaining question is what will happen when that “last windfall” runs its course. Here, DrRich has speculated on two possible outcomes. Perhaps the health insurance industry will declare, at the appropriate moment (after profits have been made, stock options exercised, golden parachutes deployed, &c.), that they just can’t make a go of it anymore. This, obviously, will leave the government (whether it is controlled at that particular moment by Democrats or Republicans) with no choice but to step in and take over, lock, stock and barrel. DrRich has called this single-payer end-game the Amtrak Model.
On the other hand, the end-game could follow the Public Utilities Model. Here, the health insurance companies will be converted, either all at once or gradually, into public utilities. Public utilities operate as private companies, but the rates they can charge, the profits they can make, and the products they can offer, are all determined by the government. Such an outcome would be only a quasi-single-payer healthcare system, and so might be easier to justify to a Tea-Partied-up American public.
Either option would provide a graceful exit strategy to our health insurance industry, and either would be far more attractive to them than the ignominious oblivion they would have faced without Obamacare.
Last week, we were informed that what Obamacare has in mind for the insurance industry is the Public Utilities Model. That evidence came in the form of the Medical Loss Ratio (MLR) rule that was formally issued by the HHS, in accordance with a provision of Obamacare.
Under Section 10101 of the Affordable Care Act (Obamacare), beginning in January, 2011, insurers are required report to HHS each year what percentage of their revenues from premiums they spend on a) clinical services for enrollees, b) “activities that improve health care quality,” and c) all other costs. Depending on the size of the group market (and a few other factors), insurers must spend either 80% or 85% of premiums revenue on actual health care. (This amount, in health insurance parlance, is called the “medical loss.”) So only 15% or 20% can be spent on administrative costs, marketing, profit, and other non-clinical expenditures.
Behind the scenes, there was a great amount of jockeying over the past six months to convince the National Association of Insurance Commissioners (NAIC, the organization designated to propose the MLR rule to HHS) as to what constituted clinical and quality-improvement activities and which did not.
The health insurance industry tends to insist that every activity it undertakes is aimed at improving healthcare quality, whereas congresspersons and policymakers and consumer advocates insist that very little of what health insurers do has anything to do with anything except profit and greed. So, for instance, insurers claimed that the “healthcare hotlines” they have set up for subscribers are a quality measure, and should be included under medical loss; whereas opponents of the insurance industry claim it is purely an administrative function.
(DrRich does not know whether opponents remembered to advise the NAIC how certain insurers have utilized such hotlines in the past. For instance, in 2002 Kaiser Permanente paid workers at three northern California call centers bonuses for limiting the number of doctors appointments they set up, and for limiting the duration of patients’ phone calls. Kaiser admitted that workers at the hotlines received between 2 and 4% of their salaries as bonuses if certain criteria were met. In order to receive their bonuses, the hotline workers were expected to make appointments for less than 35% of the callers, to spend an average of less than 3 minutes and 45 seconds per call, and to escalate less than 50% of their calls for further evaluation.)
In any case, the NAIC finally made its recommendation on the MLR rule, and on November 22 HHS accepted the proposed rule in its entirety.
For the purposes of this post, the details of the new MLR rule are not particularly relevant. What is relevant is that such a rule was made at all.
The MLR rule sets a federally mandated, one-size-fits all limit on how much of its revenue an insurance company can use for administration and profit. That is, the MLR rule is explicitly the very kind of control that government agencies always impose on public utilities.
For public consumption, proponents of Obamacare have always claimed that insurance expenses – including profits – will be controlled through the competition that will be provided by the new “health insurance exchanges.” If market-like competition were actually simulated through these exchanges, then it is true that the MLR ratio would be driven toward the optimal value.
But the MLR rule establishes, among other things, that market forces are actually not going to be allowed to function in this arena. Rather, the optimal value for MLR will be determined by governmental regulators.
And so, dear readers, it appears that the deal, which proponents of Obamacare struck with the health insurance industry, is beginning to take definite shape. What we’ve got here, increasingly clearly, is the Public Utilities Model – a truly graceful exit strategy by anybody’s reckoning.