Stanley Feld M.D.,FACP,MACE
At the moment, ideology and political philosophy stands in the way of Repairing the Healthcare System.
President Obama believes in central control of the healthcare system. Central control of other healthcare systems has not worked to control healthcare costs while maintaining quality of care. The only possible exception is Switzerland’s healthcare system.
Each province in Canada spends at least 50% of its GDP on healthcare according to the Frazier Report. The access to care is less than ideal. Healthcare spending is unsustainable in Canada
England is slowly switching to a private healthcare system.
Obamacare has already demonstrated its inefficiencies and lack of cost control even though most of the population has received waivers from Obamacare for at least one year.
The trajectory of failure is not going to change until President Obama is out of office and the system changes to put the consumers in control of their health and healthcare dollars rather than having the government in control.
President Obama declared in 2010;
“Today, many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. Thanks to the regulations, consumers will receive more value for their premium dollar because insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.”
Unfortunately, for Americans, President Obama tells us what we want to hear in a very seductive way and then does the opposite.
President Obama is always calling for someone to provide a new idea in order to fix Obamacare. His promise to the public is a good idea. However it is not reflected in the Obamacare regulations.
What is the meaning of Medical Loss Ratio?
The definition of medical loss ratio is the incurred claims received divided by premiums collected.
The healthcare insurance industry negotiated all the rules it wanted from President Obama and Kathleen Sebelius in defining incurred claims in the new Obamacare regulations. The rules contradict Mr. Obama’s promise to the American public.
The healthcare insurance industry is supposed to spend 85% of the premiums collected on direct medical care costs.
The remaining 15% of the premiums is for the insurance industry’s expenses and profit.
The healthcare insurance industry claims it is lucky if it clears 3% profit under the Obamacare rules.
In order to encourage the healthcare industry to participate in Obamacare, President Obama pledged that the government would subsidize the healthcare insurance industry for any shortfall in profit.
A self-insured employer sponsored healthcare plan outsources the administrative services to the lowest bidding healthcare insurance company. The government outsources Medicare, Medicaid and Tricare (VA insurance) to the lowest bidding healthcare insurance company.
The Obama administration has included most of the healthcare insurance industry’s requests in the incurred claims (direct patient care) formula that is used to calculate the medical loss ratio.
Inflating the incurred claims decreases the amount of money spent on direct patient care in order to maintain an eighty-five percent (85%) medical loss ratio.
If the incurred claims costs go up the medical loss ratio goes down. The potential increase in the medical loss ratio is the justification used by the insurance industries to increase premiums.
Obamacare requires insuring with a pre-existing condition. Insuring everyone with a pre-existing condition increases the insurance risk. Hence Americans experience double-digit increases in healthcare of insurance premiums.
The expenses the industry wanted included:
1. The cost of verifying the credentials of doctors in its networks.
2. The cost of ferreting out fraud such as catching physicians over testing patients or doing unnecessary operations.
3. The cost of programs that keep people who have diabetes out of emergency rooms.
4. The sales commissions paid to insurance agents.
5. Taxes paid on investments.
6. Taxes paid on premium income.
7. Unpaid claim reserves associated with claims incurred.
8. Change in contract reserves.
9. Claims-related portion of reserves for contingent benefit.
10. Lawsuits experience-rated refunds (exclude rebates based on issuers MLR.
All these expenses are administrative expenses in my view. It is questionable that these should be included in direct patient care (incurred claims).
These expenses also increase a healthcare insurance company’s profit. Each incurred cost has a built in 15-20% profit.
As these expenses continue to be are permitted as incurred claims (direct medical care expenses), the resources available for direct medical care decrease from eighty-five cents to sixty cents on every premium-collected dollar.
At the same time people complain about the grotesque profits and salaries of those in the healthcare insurance industry.
Obamacare, contrary to President Obama’s promise, did nothing to solve this abuse.
It is almost as bad as the promise," If you like your doctor you can keep your doctor. If you like your insurance plan you can keep your insurance plan.
The closest I could get to transparency and the distribution of one healthcare dollar to direct medical care is the following.
Fifteen cents goes to the doctor and twenty-five cents to the hospital. The remaining sixty cents goes to the healthcare insurance companies.
The definition of direct medical care according to Obamacare is:
Definition of Medical Claims By Obamacare
Incurred claims = direct claims incurred in MLR reporting year + unpaid claim reserves associated with claims incurred + change in contract reserves + claims-related portion of reserves for contingent benefits and lawsuits +
experience-rated refunds (exclude rebates based on issuers MLR
Medical Claims and Quality Improvement Expenditures
As illustrated in Figure 1, increases in either medical claims or quality improvement expenditures (holding other factors constant) will increase
the MLR and reduce the likelihood of premium rebates to policyholders. Conversely, reductions in medical claims and/or quality improvement
expenditures (holding other factors constant) will decrease the MLR and increase the likelihood that insurers will have to provide rebates to policyholders.
Medigap plans (Medicare Part F) have separate medical loss ratio requirements. The healthcare insurance industry has to meet a 65% level for individuals and a 75% level for groups. It means that for every dollar in premium the individual has 65 cents minus incurred expenses coverage for direct medical care and for groups 75 cents minus incurred expenses.
Medigap plans, which are supplemental policies that Medicare beneficiaries can purchase to fill gaps in Medicare coverage, are not covered by the ACA MLR provisions.
Medigap plans are subject to their own separate MLR requirements, found in Title 18 of the Social Security Act; the MLR requirements are 65% in the individual marketplace and 75% in the group market.
Finally, the ACA’s MLR requirements do not apply to long-term care, dental, vision or retiree healthcare plans.
President Obama promised to fix these problems. He said,
“Today, many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. Thanks to the regulations, consumers will receive more value for their premium dollar because insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement.
He didn’t. He won’t.
He knows the problem. Fix it.
If he did he would save Obamacare and tax payers a great deal of money.
I am confident this suggestion will be ignored and at election time more false promises will be made.
The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone
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