Part of the Senate bill invites states to file waivers that basically would allow a state to do whatever it wanted. One of the elements of the ACA that can be waived is the requirement that insurers spend at least 80% of the premium dollars on claims. That is known as the Medical Loss Ratio (MLR). Waiving MLR is an invitation to loot in single insurer states.
The #ACA req'd that insurance companies use your premiums for actual healthcare cov. #TrumpCare repeals it #CBOScore https://t.co/lyI2CfEziV pic.twitter.com/2mpRxchU0l
— Khary Penebaker (@kharyp) June 26, 2017
Here is how it would work in a single insurer state.
The insurer would split their business into two filing entities. The first one would be off-Exchange only. They would file normal rates for this entity. The second one is the vehicle designed to extract cash from the federal government as it offers on-Exchange policies. These policies will be extremely pricey. The benchmark plan could be a nation wide network PPO for instance. The insurer could offer a low cost local network Bronze and Silver plan priced under benchmark. The subsidized buyers are protected from the price increases as they pay a percentage of income and the federal government picks up the rest.
The insurer runs a 70% MLR while keeping core administrative costs relatively low. This produces a new pot of money that can be split three ways. The first stream is a small stream. It is a public benefit stream where the insurer sponsors more Little League teams or sponsors a neighborhood vaccination clinic or some other combination of public facing entities that makes the community smile. The second stream goes to campaign contributions and other legal financial and political cover to friendly regulators who can help keep the region a single insurer region. The last pool of money is internalized for senior company stakeholders or distributed back as profits.
This scheme is straightforward. It is legal. It is against the interests of a region with only a single insurer but the costs are diffuse and the benefits are tightly concentrated. It fails in multi-insurer regions unless there is illegal collusion. MLR requirements are usually superfluous in competitive markets. Insurers can be profitable with MLRs in the high 80s and low 90s. I worked at one that was. MLR requirements are a constraint on looting in non-competitive markets.