Kaiser Health News is reporting that the Obama administration is preparing to implement yet another rule change in the rollout of Obamacare that would relax the enforcement of the medical loss ratio (MLR) provision for health insurers.

To review:  The MLR provision, which took effect in 2012, requires all insurers in the individual and small-group  health insurance market to spend 80% of every insurance premium dollar (85% for insurers in the large-group market) on medical care and expenses for customers, according to specific guidelines developed by the government. Only the remaining percentage of 15-20% can be used for administrative costs and profits. If an insurer does not meet its minimum-loss ratio, it must issue a rebate to its customers.

From Heritage.org: “In the Federal Register, the Department of Health and Human Services signaled it may give insurers a temporary break on the ratio requirements, citing “the special circumstances” of the disastrous launch of Obamacare’s federal exchange website (HealthCare.gov). The administration also made other last-minute political changes during open enrollment, which ends on March 31.”

The minimum-loss provisions have been roundly criticized in this and other forums, as insurers would have little reason to manage claims costs below the MLR, since they will be penalized for doing so. It essentially sets the allowable limit for profit, regardless of how efficient or how successful a carrier is. In other words, health insurance carriers are regulated as utilities (a concept I first ran across in a well-known industry publication more than fifteen years ago).

The issue appears to be that insurer costs relating to the botched launch of Obamacare will make it difficult if not impossible to meet the MLR. Of course, at that point, if losses due to claims and other costs exceed revenue (likely, in my opinion), then the next big crisis will be “risk corridors”, which will compensate health insurance carriers for unanticipated losses. An understanding of this can be found here. And yes, it is a bailout, since the government agreed to compensate insurance carriers, who are required to meet claims and loss guidelines mandated by the government, for losses under The Affordable Care Act.

That it is considered to be a bailout by conservatives and not-a-bailout by progressives is a given. The reality is that the taxpayer is on the hook for outflows from companies who agreed to participate in the health insurance exchanges, if inflows don’t meet requirements for claims and costs (very likely, given that much lower numbers of previously-uninsured applicants, as well as applicants who are in the younger ages that the plan requires, have actually enrolled in Obamacare). In fact, many in the media get it completely wrong, as detailed here.

It is puzzling to me why some Republicans are quick to introduce legislation forbidding insurer compensation (known as the risk-corridor provisions) for losses incurred in meeting the requirements of Obamacare. They’d be better off simply allowing the Act to come apart on its own, which is what will happen, given the amount of panicked fiddling that is occurring with its implementation, and replacing it with something that will work, minus all of the social re-engineering. Eliminating the risk corridor provisions of Obamacare will simply bankrupt most carriers who agreed to participate in the exchanges, since they will be unable to sustain the losses that will occur given the conditions as they exist “in real-ville”. It’s been obvious for some time that the estimated number of uninsured, by most left-of-center pundits and think tanks, including FamiliesUSA, was optimistic; those numbers were used to justify and support all of the projections needed to make Obamacare work. That it isn’t working shouldn’t now be a surprise, and bankrupting insurers will simply provide Democrats with the end game they’ve always wanted: the death of the private health insurance market. Republicans should brandish the “no bailouts!” banner with great trepidation.

Senators John Barrasso, R-WY, and  Sen. Tom Coburn, R-OK, have co-authored a report detailing the disaster known as Obamacare. Senators Barrasso and Coburn have a unique perspective on the emerging octopus of centralized/federalized health insurance: they are both physicians.

Some excerpts from the 38 page report:

• Warned the health care law could eliminate about 788,000 jobs. CBO Director Doug Elmendorf confirmed in Congressional testimony that the health care law would reduce the workforce by approximately 800,000 jobs.
• Concluded the Medicaid expansion’s “extra costs forced upon state taxpayers and state governments could climb into the hundreds of billions of dollars”. In fact, according to a tally of state estimates, the law will impose about $120 billion in additional costs on states, just in the first few years of the law’s implementation.
• Explained the Community Living Assistance Services and Support (CLASS) program was “a budget gimmick to appear to offset new spending” and warned the program could “expose taxpayers to tens of billions of dollars of loss” because it was would eventually collapse. The Department of Health and Human Services (HHS) has admitted CLASS was unworkable, and shuttered the program.
• Cautioned “the appearance of Medicare‘s extended solvency is actually only a mirage. In reality, under the new law, Medicare‘s unfunded liabilities will grow worse”. The Medicare Actuary late concluded that Medicare’s unfunded liabilities are made worse by about $2 trillion under the law.
• Warned that “as the new law is being implemented, millions of Americans are in danger of losing their current health insurance.” HHS concluded that, under the law, between 39 and 69 percent of businesses will lose their status as “grandfathered health plans”—plans largely unaffected by the law’s new mandates. HHS estimates by 2013, up to 80 percent of small businesses will lose their grandfather status.
• Noted that “rather than fixing an issue everyone in Congress agreed was a problem, Congressional leaders left the doc fix out of the final health bill” because of “budgetary shenanigans” to decrease the appearance of the bill’s cost. We warned that this policy omission “could endanger access to care for millions of seniors. In fact, Congress has already had to intervene several times to prevent severe cuts to physician reimbursements that would harm seniors’ access to care.

An eye opening report that every employee worried about their employer abandoning their health care, and every employer worried about the spiraling cost of benefits, should read.

Quote: 

“When I say ‘If you have your plan and you like it,… or you have a doctor and you like your doctor, that you don’t have to change plans..”

“What I’m saying is the government is not going to make you change plans under health reform.”

(Editors note: unless you have an HSA!)

These are well-known comments from POTUS Obama in the time leading up to the passage of The Affordable Care Act, and afterwards as he flew around ginning up support for an incredibly bad piece of legislation. We now know that these comments aren’t accurate, or even, strictly, truthful. And they directly impact so-called Bronze plans, of which HSAs should be a component. Only, they won’t be.

It should come as no surprise that Democrats despise Health Savings Accounts (HSA for short). Their leading left-wing think tanks routinely lambast them. It’s been somewhat hard to understand why the Administration hasn’t been dissing them openly since the passage of Obamacare; now we know why. They are simply going to eliminate them without a shot being fired, due to a complex series of rules and regs that could only be interpreted as willful, and involve the actuarial percentage of benefits paid in each Gold, Silver, and Bronze plan, and the confusing effects from a price control enacted for political purposes.

The Medical Loss Ratio (MLR) Rule is the culprit. HSAs, under this regulation, cannot qualify.

The MLR Rule requires insurers to spend no more that 20% of premium on administration in the small group and individual markets and 15% in the large-employer market. This spells trouble for high-deductible health plans in exchanges, since only 5% of those with an HSA qualified health plan in a year have any claims paid by their insurance.

HSAs, in summary, are high deductible plans that allow cash to be set aside in a fully tax-deductible savings plan to be used to pay for out-of-pocket expenses before the deductible is met. HSA-qualified health insurance policies are usually lower cost than many fully-featured health plans, and are especially well suited for many small business sole proprietors, or others who believe saving money to pay for their own out-of-pocket costs is better than giving it to an insurer, who is in essence subsidizing other health insurance claims with their dollars.

Here’s part of the problem: payments made by an insurer for health care expenses count towards meeting the MLR Rule; payments by individuals out of their health savings accounts do not. Taking into account the complex rules for “credibility adjustment” and “cost-sharing adjustment” for companies that sell high-deductible plans, HSA-qualified or not, it appears that, given the lower claims-paying of HSA  or other high deductible plans, it is mathematically impossible for any plan to meet the MLR of 80%. This would mean no Bronze plans in the Exchanges, since they cannot meet the complex and required Minimum Loss Ratio Rules.

Obviously, plans with higher deductibles are being intentionally disadvantaged by this arcane formula because they cannot count claims incurred below the deductible. Since Bronze plans under the PPACA cover 60% of the benefit costs of the plan, it seems unlikely that HSA plans will be eligible under this scenario, even though the original guidance showed HSA plans as being eligible based on their deductible range (See here). Further, the carrier must still process claims below the deductible to track deductible expenses, but no cost of that processing can be applied to the MLR’s.

I draw my final conclusions from this study prepared by the HSA Coalition:

“Clearly, the MLR adjustment factors for cost-sharing and credibility help companies offering high deductible plans but only if they have low enrollment. Most [insurance] companies will likely see little benefit because the adjustments end up being minimal and ultimately disappear because of the way the MLR formula is constructed. In the short-term, this could limit future growth of HSAs in the fully-insured markets (individual, small group, large group) and put extra pressure on premium pricing to minimize potential rebates. Insurance companies (especially the current market leaders) may be encouraged to sell more expensive plan designs with more first-dollar coverage (e.g., HMOs and traditional PPOs)because it will be easier to meet the MLR requirements. The result could be a future market dominated by more expensive plans, dramatically reducing affordability of coverage and adding significantly to the costs of income-based subsidies provided under the law, since the subsidies are based on the weighted average premiums for Silver plans in the “market area.”

The end result will be that the exchanges will likely be dominated by high-cost health plans with few lower cost options available, leaving people out of the market – until they desperately require health insurance coverage. This will quickly drive up the cost of coverage, expanding the subsidies needed to pay for it.

A summary of the problem is here. And, here is a detailed article on MLR’s Potential Effect of HRAs and HSAs.

UPDATE on 2/26/12 – Quote: “The obstacles Obamacare creates for consumer-driven health plans could lead to their extinction, even though they are an affordable form of coverage that is gaining in popularity.” See this link.

An interesting comment on what agents and brokers bring to their clients:

“The thing many people don’t know about our industry is that health insurance agents are in the business of saving lives. Like family physicians or ER surgeons, agents are intimately connected with their clients’ quality of care — and are often exceptionally hands-on in fighting for a treatment or surgery to be approved by the insurer so that it can be performed by the doctor.

This same hands-on guidance is needed before coverage is in place. Choosing a health care plan is no easy task, as anyone who has shopped for an individual health plan will tell you. It is also frequently not an affordable task. In a struggling economy, one of the biggest challenges agents now face is convincing people that health care coverage is a necessary expense, not an expendable one.”

I thank the contributor for an industry newsletter for this observation. This commitment to the client is a hallmark of all good agents and brokers. Somehow, Washington misses the point when they pass legislation that specifically excludes agents from assuming their rightful place as a trusted advisor to the public, and instead empowers entities with an agenda not wholly in keeping with the best interests of the general public (or, private-sector employees!) to do the job that trained and ethical insurance agents have been doing for decades. How so, you say? Believe it or not, under the Affordable Care Act, agents and brokers may not be compensated, and aren’t recognized as traditional insurance licensees for the purposes of placing health insurance. In essence, your health insurance agent or broker, whether you use individual or group insurance, will be out of business on January 1st, 2014. He most likely won’t be able to assist you – and, assuming you need to use an exchange-based product (a good bet for many people) you won’t be allowed to use him.

Of course, the conventional wisdom from HHS is that agents and brokers will of course be allowed to assist their clients and prospects through the exchanges. And this is about as far as the mainstream media will take it (they really don’t want to get involved in the details, you see). What HHS is really saying is that if a state wants to allow agents to enter the exchanges, they can do so, under new rules announced recently. But under the AFA, they still can’t earn a commission for the placement of a health insurance policy or group plan. We can however, receive “grant money” through the health insurance exchange, known as a “Navigator” grant (but the funding for these grants cannot come from federal funds). What’s really interesting is that agents and brokers are a long way down on the list of specific “entities” are are allowed as navigators, and, as I recall, weren’t originally included in the Navigator section under Obamacare, and this is telling: included in this list are groups and organizations whose primary focus isn’t in serving the public with accurate insurance information: consumer-based nonprofits and unions lead the list. I’ll let you, the reader, figure out why unions would be allowed to act as navigators with employees of primarily non-union employers.

Of course, HHS will allow the state exchange to “enforce existing licensure standards, certification standards, or regulations for selling or assisting with enrollment in health plans and to establish new standards or licensing requirements tailored to navigators”. Color me sceptical, but I foresee some Insurance Departments making it easier, not harder, for previously unlicensed entities to act as navigators, and harder for traditional agents and brokers, who primarily work as independent contractors with a cottage-industry business model. It’s simply a matter of scale – a union or a non-profit is very familiar with the way government works, and can easily acquire any expertise required to achieve navigator status and apply for grants to enroll large numbers of eligible individuals – they themselves have the resources to hire employees, under a broker license, to do just that. As a national operation, they are tailored-made for the kind of large scale enrollment activity that Obamacare requires. Individual agents work alone, sometimes in larger agencies, but rarely with more than a few dozen agents. Inevitably, there will be problems with compensation for agents and brokers. We don’t receive salaries from a union.

There are other hurdles that agents will find hard to meet – almost as if they were specifically being targeted for extinction through the use of the navigator process. For instance, navigators must “provide information in a manner that is culturally and linguistically appropriate to the needs of the population being served”, along with other heretofore nonexistent requirements for agents and brokers working in the private-sector insurance market. While, again, the devil is in the details, I doubt that many agents, assuming a strict interpretation of these requirements to receive navigator grants, will be able to meet these onerous requirements, especially given the nature of the lack of any clear compensation path. It’s another matter entirely if the governing board of the health insurance exchange, empowered with granting navigator status, is anti-broker, as will almost certainly happen in some (most?) states. As proof of the politics involved, consider the number of state insurance commissioners who continue to insist that agent compensation not be excluded from the Minimum Loss Ratio rules as a pass-through cost – almost ensuring the death of the traditional insurance agent in the role he’s always played in the delivery of health insurance policies to the public.

In Colorado, exchange legislation was adopted in May 2011, with the passage of SB 11-200, The Colorado Health Benefit Exchange. The legislation as passed and adopted does not address any issues regarding navigators in Colorado, and in fact does not mention agents or brokers in any way shape or form.

I can only draw the conclusion that, barring a Supreme Court decision invalidating The Affordable Care Act in it’s entirety, or the election of a super majority of Republicans in the House and Senate at the federal level (and the election of a Republican President in 2012) my role as an agent/broker advising the public as a licensed insurance agent on health insurance and group benefits will most likely come to an end in 2014. This isn’t anything new, of course: Hillary Clinton, who headed up her own scheme for a government takeover of health care, was asked by an agent in 1993 what would happen to health insurance agents under her plan. The Wall Street Journal quoted Clinton as saying, “I’m assuming anyone as obviously brilliant as you could find something else to market.”

Spoken as a true central planner. One wonders what else they will “nationalize”.