10/31/2010 08:02 pm ET Updated May 25, 2011

One Small Step For Us Consumers

It's nice to report, for a change, some good news for beleaguered consumers. The greedy health insurance industry, which has been lawyering up and lobbying to dodge the most important requirements of the Affordable Care Act has lost an important battle this month.

As Wendell Potter, former insurance company executive turned consumer advocate, has put it , "This time our state insurance commissioners...did the right thing for consumers when they refused to cave in to intense pressure from the profit-obsessed insurance industry to gut an important provision of the health-care-reform law."

Consumer Watchdog, covering the National Association of Insurance Commissioners (NAIC) meeting in Orlando, said it more simply: The commissioners "sent rules to the Department of Health and Human Services that will require insurers to spend more money on health care and less on administration and profits."

Now it will be up to HHS Secretary Kathleen Sibelius to write regulations that are designed to enforce the rules, and that will be tough. The insurance companies have not cooperated with the health reforms as President Obama naively hoped. Indeed, several companies have sharply raised premiums by double digits in advance of the rules and announced they would not offer the coverage the law promises.

As a result, Consumer Watchdog and other advocates have called on the White House to freeze premiums until the industry complies with the pricing provisions of the new law, which requires them to explain further increases before they take effect. Sadly, all Sibelius and the administration can do is appeal to the industry, for there is little in the law, aside from light civil penalties, that they can do to punish the companies and there is no legislative limit on premiums.

What there is in the law, as I've discussed in an earlier post, is the crucial requirement, called the "medical-loss-ratio"( MLR) that companies must spend 80 to 85 percent on premiums on actual health care; the former is for smaller insurers, the latter for the big ones. The rest. 15-20 percent is supposed to be spent on administration and profits. If enforced, insurers that do not meet these requirements must issue rebates to beneficiaries.

Some critics say the MLR, which grants insurers the possibility of making profits of 15-20 percent on the premiums is too generous. The insurance lobby has protested that the requirements will hurt beneficiaries and encourage fraud and cheating..

The law gave the task to the NAIC to look at the books of the companies and figure what costs can legitimately make up the MLR. The commissioners have been meeting for nearly six months to come up with recommendations designed to satisfy consumers and the insurers. But the companies, as you'd expect, have sought to cripple the MLR with amendments.

Aside from raising premiums to evade the effects of the MLR, the insurers have sought during the past six months to convince the commissioners to agree that every dollar they spend on sales personnel, advertising, marketing, phony promotions and other extraneous expenses should be categorized as "health care," rather than administration.

For example, they sought to include community-based "wellness" promotion campaigns, which helps publicize the insurer's offerings and is nothing more than public relations. The companies also wanted some of their federal and state income taxes counted as health care expenditures, to which the NAIC agreed. But the commissioners turned down the insurers request to include as health care costs the taxes they pay on investment income. Similarly, the NAIC turned down the industry's proposals to deduct broker fees, average their medical spending nationwide rather than state by state and loosen rules for smaller companies that don't quite meet the 80 percent requirement..

Potter pointed out, the timing of UnitedHealth's announcement of a 23 percent increase in profits for the third quarter two days before the NAIC meeting undercut the insurers' appeal for more loopholes to dodge the requirements. As a result, the commissioners rejected most of the insurers' proposed amendments. Potter said the regulations approved by the commissioners represents a compromise that will make it easier for the industry to comply with the MLR.

But we can expect American Health Insurance Plans (AHIP) to take their lobbying effort to Sibelius, who has already issued 30 waivers to company insurance plans that claimed they were having difficulty complying.

Consumer Watchdog said despite the victory in Orlando, "the rules still contain significant concessions made to insurers." They include allowing companies to subtract the federal and state income tax they pay on premium revenues before calculating medical expenses; allowing companies to classify as "health quality improvements" the costs and salaries of clerks who reject claims, the cost of phone hotlines to handle consumer questions and complaints, and the cost of penalties the insurer are supposed t pay for not meeting the law's requirements.

"Making these rules work," said Carmen Balber, Washington director of Consumer Watchdog, "will require tough scrutiny of insurance companies' spending to make sure they don't use pass off overhead costs as health care."

Sibelius said the commissioners' recommendations "are reasonable, achievable for insurers" and she promised to "work quickly to promulgate this regulation" using the commissioners' recommendations. But does the administration have the stomach to wage a constant fight with insurers for whom the health reforms were tailored? And will HHS have the financial expertise to examine and interpret the books of the companies? Can the insurance industry be required to cut their own profits, as the law intends?

Karen Ignani, president of the insurers' lobby, signaled its intentions to fight and dilute the MLR on the grounds that stock prices may decline and discourage investment in insurance stocks. She commented on the NAIC meting: "Defining health care quality initiatives in a way that is too narrow or static will turn back the clock on progress and create new barriers to investment in the many activities that health plans have implemented."

Potter replied: "If the health plans that take our money but give us lousy coverage in returned are forced out of the marketplace, I say good riddance."

He acknowledged, however, that if smaller companies fail concentration in the industry will increase. And so will the power of the large insurers to tailor the final regulations to their liking.

A final note: Medicare for All would generally eliminate the need for most health care insurance.

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