Friday, June 28, 2013
Health Plans and the 80/20 Medical Loss Ratio Rule
Pareto Principle (The 80/20 Rule), the law of the vital few, states that for many events 80% of effects are the cause for 20% of the causes.
Definition of 80/20 Rule
If you’re an Obamacare aficionado, you’re likely to argue that the Medical Loss Ratio, the 80/20 rule that requires health plans to spend at least 80% on premiums and less than 20% on marketing, executive pay, and administrative costs, is responsible for lower premiums.
If you are a health plan customer who has seen his/her premiums rise by 20% or more over the last year since Obamacare passed, you will challenge this argument. Ditto for small businesses with 50 or more employees, the young and healthy, and people in individual or small group markets who face steeply rising premiums because they must now buy comprehensive, government approved plans, pay penalties, or face the IRS.
But, CMS may counter. Look, we investigate all health plans who raise rates more than 10%, and we just announced U.S. Insurers will have to rebate $500 million to employers and individuals, an average of over $100 to 8.5 million employers and individuals.
This doesn’t seem to impress Americans, 66% of whom in the latest polls who look with disfavor upon Obamacare and 82% of whom say they like their current health plan. Although President Obama famously promised premiums for families would fall by $2500 by 2016, the opposite seems to be true. And there is widespread apprehension about “rate shock” once Obamacare officially kicks in.
Who is the villain – government or health plans – when it comes to high costs?
I don’t know, but in the U.S, government involvement seems to foster higher costs, and fraud and abuse is much more rampant in federal than in private programs. I know this, the Obama administration has tended to treat health plans as the skunk in the reform garden party. They claim health plans are overly profitable, rig the system to cancel or exclude those with pre-existing illness, and spend too much on Medicare Advantage Plans, overspend for excessive marketing and executive pay, and otherwise abuse their capitalistic privileges.
The federal mindset seems to be: for-profit health plans are easy to hate because it charges premiums to stay in business , government is easy to love when it provides “free” entitlements to stay in power.
If you’re a health plan CEO, it’s no fun being a skunk in the health reform fight. But deep down, these CEOs know how only they have the data and savvy to administer health benefits. Reformers and Obama officials may talk a big game, but do they have the game to administer public plans or to compete with private plans?
The truth is government cannot do without the skills data sets and skills to administer federal plans. The truth is most consumers want the freedom to pick their own health plans, based on need, rather than government-endorsed plans, based on extending political power. The truth is most workers would rather payer lower premiums based on personal responsibility engendered by the fastest growing segment of the health plan market, health savings accounts, rather than rely on government
Tweet: CMS has announced health plans must pay $500 million in rebates to employers and individuals for abusing the 80/20 Medical Loss Ratio rule.