What is a medical cost and what is an administrative cost? It took the federal government 308 pages to answer that question in its interim regulations on Medical Loss Ratio (MLR). Why does anyone care? Because under the new health reform law insurers must spend 80% of your premium on medical expenses (85% for group plans). Fail to meet this standard and the insurers must give you a rebate.
Broker commissions are overhead; federal taxes are not. Presumably, money paid to fraudulent health care providers (who are never caught) are medical expenses. Activities to detect fraud are administrative expenses, but activities to recover fraudulent claims are not. Activities to boost quality can be excluded from overhead calculations unless they’re designed to detect fraud. “Those activities which are designed primarily to control or contain costs…” are not quality improving activities that can be excluded from administrative cost calculations. Clear as mud?
Theoretically the regulations were designed to protect consumers from excessive marketing costs and overly-generous executive pay. In reality, MLR caps will cause some plans to simply go away because they can never profitably meet the requirements. This includes inexpensive mini-med plans which have higher overhead (because benefits are capped). The new regulations give mini-meds a temporary waiver, however.
All told, 111 companies, unions and other organizations have received waivers in the past few weeks — suggesting that we have a major problem here. Washington is still in denial, however. Here is Nancy-Ann DeParle, explaining the minimum loss ratio rules: It’s all gain and no pain.