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The Most Important Health Care Reform Provision You've Never Heard Of

November 14, 2009 - by Donny Shaw

Most of the coverage of Congress’ health care reform process has been focused on the public option. From it’s arrival as a compromise for single-payer to its slow and painful neutering in each successive iteration of health care legislation in Congress, the public option has been the health care politics story to watch. But all of Congress’ health care bills have been more than 1500 pages long— there’s a lot more to them than just the public option.

For months, Bruce Webb has been tracking a provision in the House’s health care bills that has flown mostly under the radar. He calls it the “most important and most overlooked” aspect of the bills, and he may be right.

The provision in question is entitled “Ensuring Value and Lower Premiums.” In all of Congress’ health care bills it reads more or less like this:

In General- Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary (but not less than 85 percent), the issuer shall provide in a manner specified by the Secretary for rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.

Translation: Once the bill is enacted, all health insurance plans would be required to spend at least 85 cents of every dollar paid in premiums each year to providing actual health care. If, in a given year, an insurer doesn’t spend that amount on health care, they would have to give their extra profit back to their customers in the form of rebates. Only 15 percent of premiums max could be used for marketing, administration, underwriting and profit. And the HHS Secretary could up the ratio from 85-15 if she saw fit.

The provision “almost totally strips the ability of insurance companies to combine cherry picking and premium increases to continue the huge profits they garner today,” writes Webb at the Angry Bear blog. “In a word this [section] automatically limits profits by establishing indirect price controls,” he adds.

It’s a big challenge to the insurance companies’ way of doing business, and it’s totally independent of what kind of public option (if any) is in the bill. The business of denying coverage to the sick and unhealthy would be over. Insurers would have to make up for their losses in denying coverage by finding more patients. It would transform the business of private health insurance from strategically denying coverage in order to maximize profits to trying to insure as many people as possible in order to gain market share. That’s a HUGE change from the status quo.

But there’s a twist to all of this. The version of the bill that was passed by the House last weekend includes the provision, but also includes some curious, new “sunset” language. The sunset language states that the new minimum medical loss ratio requirements “shall not apply to health insurance coverage on and after the first date that health insurance coverage is offered through the Health Insurance Exchange.” In other words, in 2013, when most of the bill takes effect, the medical loss ratio language would be null and void. There would be no more profit control, just the market competition that is provided by whatever form of the public option is included in the bill. Read the sunset language in context here.

This really doesn’t make a whole lot of sense. What’s the point of including it in the legislation if it’s not going to apply once the bulk of the bill takes effect? Webb wonders if there is some kind of error — either in how he is reading the bill (the same way I read it), or how the language of the bill has been drafted. “In their zeal to get certain protections in place right away they swept Sec 116 [the medical loss ratio provision] which clearly is focused on a future Exchange and tried to enforce its requirements on the current market,” Webb writes. This sunset language was not included in the health care bills that went through the three House committees this summer, but it is included in the final version that was passed by the House.

There’s no final Senate bill at this point, but as far as I can tell the two existing Senate bills — the Senate Finance Committee bill and the HELP Committee bill — do not have any similar medical loss ratio language in them. The final Senate bill is expected out this week. I’ll be looking for any signs of similar language to be included in it. If it’s not (and, honestly, since it’s not in the Finance or HELP bill, it’s not likely) it would have to be reintroduced in the House-Senate conference committee. Unless of course the sunset language was some kind of clerical error and the House bill was always meant to include these stiff new medical loss ratio requirements on the health insurance companies.

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