Will Small Business See Health-Care Cost Relief?
Yes, insurers are price-gouging small companies. Bills in the House and Senate would help them fight back
Entrepreneurs have long groused that their health plans are charging them premiums far in excess of the amount required to provide care for their employees. Now a Senate Commerce Committee analysis of just how much insurers spend on health care offers some support for that complaint. In 2008, five large insurers—WellPoint (WLP), UnitedHealth (UNH), Aetna (AET), Humana (HUM), and Coventry Health Care (CVH)—spent just 80% of the premiums they collected from small companies on actual health care. (The rest goes to items such as marketing, administration, and profits.) For big-company clients, the five paid out slightly more—84%. Len Nichols, director of the health policy program at the New America Foundation, says that for companies with fewer than 10 employees, that number—known in the industry as the medical-loss ratio, or MLR—is often as little as 75%. Says Wendell Potter, the former director of media relations for Cigna (CI) who alerted the Senate to this issue in June testimony: “These data prove that America’s small businesses have repeatedly been and continue to be the biggest victims of price-gouging by insurance companies.”
The health-care legislation passed by the House of Representatives requires minimum MLRs of 85%, and represents the first effort on the part of the federal government to address this problem. The Senate version of the bill requires MLRs of 80% in the large- and small-company markets, and an MLR of 75% for individual policies. Insurers that don’t meet this target will be required to pay rebates to their customers. “Establishing a medical-loss ratio will ensure that the dollars small businesses spend on covering their employees will actually go to provide medical care
UNINTENDED EFFECTS?
Although regulators can ask tough questions, they ultimately depend on the insurers to determine their own MLRs. That’s why the House bill also calls for the establishment of a uniform definition of medical-loss ratios and a standard methodology with which to calculate it. For its part, the industry challenges the very notion that MLRs contain any information that is useful. “The real problem is the underlying cost of medical care, not the rise in premiums,” says Robert Zirkelbach, the spokesman for America’s Health Insurance Plans, an industry trade group.
Some policy analysts worry that regulating MLRs might lead to some unintended consequences. To keep their MLRss at 85%, insurers might, for example, be inclined to reduce investments in areas such as information technology. They can also raise their MLRs just by paying doctors more. “MLRs are an imperfect instrument,” says Nichols, who calls the House plank “better than nothing.” Just because a health insurer meets its MLR minimum, he notes, does not necessarily mean that it is providing good outcomes at an affordable price.
source: businessweek
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