“Last Friday, the U.S. Department of Health and Human Services denied the Texas Department of Insurance’s (TDI) request for a waiver from the Patient Protection and Affordable Care Act’s (PPACA) Medical Loss Ratio (MLR) requirements. Under the PPACA, small group and individual insurance policies are required to maintain an 80 percent MLR. This means that 80 cents of every dollar spent under the policy is spent on direct medical care. The remaining 20 cents is used for administrative costs such as agent commissions, fraud prevention, and underwriting profits. This ruling disregards the significant challenges facing the Texas insurance marketplace from adjusting to these new regulations.
“Proponents of the requirements claim there is more than enough room within underwriting profits to make reductions and become compliant. However, as TDI mentions, had these requirements been applied in 2010 the aggregate rebates would have totaled $158.1 million, but the market’s aggregate underwriting profit was only $158.6 million. Clearly, insurance companies will be required to reduce much more than underwriting profits to stay compliant. Of the 34 companies in the marketplace, four are leaving and 23 will be required to pay rebates in 2011 that are likely to absorb most or all of the net underwriting profits for the industry. Proponents claim that Texas consumers will be better served by lower premiums and more efficient insurance companies. Neglected are the costs of reduced competition and a limitation of consumer choice in the marketplace.”
The Honorable Arlene Wohlgemuth is the Executive Director and Director of the Center for Health Care Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. She served 10 years in the Texas House of Representatives, specializing in health care issues.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin.
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