I've often said the U.S. health care system is so complex that trying to understand it makes your hair hurt. Case in point: the Affordable Care Act runs more than 2,000 pages. I'll grant you that it's a massive piece of legislation -- but lawmakers felt that's what was needed to fix at least some of the problems that resulted from the helter-skelter way our health care system developed.
This complexity also helps explain why it has been so difficult for the Obama administration to communicate how the numerous provisions of the law will likely benefit average Americans. And it also explains why so many journalists covering health care often do little more than "he said, she said" reporting. Going deeper requires a willingness to figure out how to make arcane but important parts of the system interesting and relevant.
I'll never forget being told by a reporter for a major financial publication while I was still at Cigna that her editor would not let her use the term "reinsurance" in a story she was writing about my firm -- even though the company had just disclosed having to take a big charge against earnings because of problems within the company's reinsurance operations. She said her editor believed readers simply couldn't wrap their heads around the concept of reinsurance. (As part of their risk management efforts, insurers buy "reinsurance" from other insurance companies to reduce their exposure to unexpected high claims from policyholders. The reinsurer assumes a predetermined portion of the risk.)
Similarly, many reporters refused or were not allowed to use the term "medical loss ratio" during the reform debate, even though changes in that mathematical equation can mean the difference between black ink and red ink on an insurance company's balance sheet. That's why shareholders and Wall Street financial analysts keep close tabs on it -- and why it's something we all ought to know a bit about.
The medical loss ratio (MLR for short) spells out the percentage of premium revenue insurers collect from policyholders that they actually pay out in medical claims. The more of our premium dollars our insurers use to pay for our medical care and improve our health, the higher the ratio. In 1993, before the conversion of many nonprofit insurance firms to for-profit status, the average MLR was 95 percent, meaning that insurers were paying out 95 cents of every premium dollar for our actual health care. Fifteen years later, that average had dropped to about 80 cents. Why? Because the less insurers pay out in claims, the more is available for profits. As you might imagine, Wall Street is very happy indeed when the MLR is constantly falling. And that's why shareholders and financial analysts are constantly pressuring insurance company executives to do all they can to keep pushing the MLR down.
One of the reform law's most important provisions -- the one that that insurance firms and Wall Street despise most -- is the one that sets the minimum allowable MLR, effective last year, at 80 percent for policies sold to individuals and small businesses. For large groups it's 85 percent. If insurers' MLRs drop below those percentages, they have to send rebate checks to their policyholders. Really.
That reckoning came last week for insurance companies that violated the law in 2011. Checks from insurance companies to individuals are now pouring into mailboxes all across the country, and if the one received by a friend in Tennessee is an indication, most Americans are wondering what the heck is going on. Nobody, certainly not the local media, had clued them in on the fact that they might actually be able to put a few bucks in their pockets because of ObamaCare.
"Is the sky falling?" my old college buddy Gary Moore wrote me in an email. "How weird is this? I got a refund of $109.57, about the amount of my son Derek's monthly premium, from Golden Rule [a UnitedHealthcare company].
"Did you know that refunds were going to be required?" asked Gary, who is about as well informed as anyone I know when it comes to health care matters. "And did you expect they would actually refund money? I am flabbergasted... and think it is a great stimulus to the economy!... or a stimulus to med providers whom I can better pay."
According to the letter that accompanied the check, Golden Rule in Tennessee didn't even come close to meeting the MLR guideline. UnitedHealthcare had to acknowledge that in 2011, Golden Rule spent only 70.9 percent of a total of $35.9 million in premium dollars it collected from policyholders in the Volunteer State on health care.
"Since it missed the target in your State by 9.1 percent of premiums it received, Golden Rule must refund 9.1 percent of your health insurance premiums... " The company went on to tell Gary: "This refund is required by the Affordable Care Act -- the health reform law."
You can be sure insurers not only hate that they are required to send out those rebate checks, they really hate it that they must tell policyholders the Affordable Care Act made them do it.
And this isn't just chump change. My buddy Gary is one of 12.8 million Americans sharing $1.1 billion insurers are having to give back to their policyholders because they spent too little on health care last year. Now that's an ObamaCare benefit a lot of us can take to the bank.