I’m no Ed Schultz fan – I think he’s a blowhard. Liberal talk radio has about 9% of the talk market – too bad he takes up so much of its limited bandwidth.
I just listened to a few minutes of him today, and got this: The House Health Care Reform bill, just let out of the paddock yesterday, contains a provision that health insurers must maintain a medical loss ratio of 85%. Since health insurance overhead is about 30%, Schultz says, this provision is significant reform.
“Medical Loss Ratio” is the percentage of health insurance premiums that are paid out in actual health care costs. It’s a number that Wall Street watches very closely. According to Wendell Potter, ex-CIGNA executive and active reformer, when our health care system was dominated by non-profits, the MLR was around 95%.
Today it is around 80%. The number that Schultz cites – 30% overhead, is the insurance burden on the entire system, which includes doctors and hospitals having to have staff and computers to deal with the insurers.
So what the House is proposing is a 5% shift in costs from overhead to medical cost payout, from 80% to 85%.
However, that 5% is significant. There are two ways of achieving that objective – one would be to reduce overhead. Another would be to raise premiums to add some padding to the overall framework*.
Since the latter would naturally be the obvious solution, there’s another provision in the House Bill that would seek to regulate premium increases. I suppose that has some merit, but again, they have failed to address the underlying problem – the profit motive. All else is much ado about nothing.
Anyway, as seen down below, the stock market didn’t even hiccup at the House bill, so I doubt that investors are troubled by any of its contents. Anything offensive will likely be stripped out in conference or disappear before our eyes, as the Kucinich Amendment did.
*Apparently Pelosi and company thought ahead. Here’s Dennis Kucinich on one section of the bill:
“It’s on page 22 of the bill, right here, it says that rates shall be set at a level that does not ka
exceed 125 percent of the prevailing standard rate for comparable coverage in the individual market. Now … It’s very easy to understand what that means.”“It means a 25 percent increase, they’ll have the ability to execute and since insurance companies have already raised rates for the last four years by double-digits, we can expect — based on the bill — another rate increase by the insurance companies.”
So a provision that raises the MLR payout to 85% within a 125% rate framework is, as we accountants like to say, legerdemain.
Piece of Mindful 