Here’s a radical idea: What if health insurance companies had to spend most of the money they collect in premiums to provide actual health care for people they insure?
As part of the health care reform enacted by Congress, new federal rules announced last week will require exactly that.
Beginning next year, insurers will have to spend at least 80 percent of every premium dollar on health care. Those selling large-group coverage will have to spend 85 percent on care.
Insurance companies refer to the amount they spend on your health care as their “medical loss ratio.” Those that don’t meet the new standard will have to give rebates to their customers. As many as 9 million Americans could receive such rebates in 2012.
For about 180 million Americans with private health insurance — everyone who gets insurance through his job or buys it on his own — the new rules are a very good thing.
That’s especially true for people in the so-called individual market. Most Missourians who buy insurance on their own are covered by companies that now don’t meet the new standard.
But there is an important caveat: The rules allow state governments to ask for extra time to implement the new standard. That could give Republican state lawmakers a new tool to obstruct health care reform.
Many Democrats view that as a sellout to insurance companies, but there’s actually a good reason to provide at least some wiggle room.
The overhead on individual policies is considerably higher than it is on group plans that most people get through their jobs.
The reason: Insurance companies have to collect separately from each individual policy buyer, and track which customers are up-to-date on payments.
In contrast, when they sell a large group policy, the company that buys it collects premiums from each employee and forwards them to the insurance company.
Eventually, statewide health insurance markets called insurance exchanges will address problems that cause higher overhead on policies sold to individuals. But that won’t happen until health care reform is fully implemented in 2014.
Republican candidates who campaigned against health care reform have been uncharacteristically quiet on the new medical loss ratio rules. That may be because the new standard provides an immediate benefit for millions of people with private health insurance. This makes the case for repeal more difficult.
Another is the enormous sums health insurance companies spend lobbying Congress — $1.4 billion since 2008, along with $35.5 million in direct campaign contributions, according to the Center for Responsive Politics.
That money provided oxygen for the misleading, fear-based ads that burned up the airwaves during the 2010 midterm election.
But new rules on medical loss ratios are a pocketbook issue for many consumers, as well as for many health insurance executives. For example, Stephen Hemsley, CEO of UnitedHealth Group, made $106 million last year, most of it from stock options.
The more health insurance companies spend providing health care to people they cover, the less is left over for profits that drive stock prices.
That might cause Mr. Hemsley’s compensation to drop to the level of most other health insurance company CEOs. They made between $10 million and about $18 million last year. Even that is considerably higher than the pay of most CEOs in the Standard & Poor’s 500 Index.
In this case, those insurance executives’ losses are your gains.