- Sep 24, 2007
The problem is the MLR requirement again (coupled with the individual mandate). The individual mandate requires everyone to have insurance. That is a finite pool of customers which grows at a somewhat defined rate. Operating as intended, there is no big pool of uninsured customers to tap in to.Prevention and treating people before they get really sick, really expensive to treat, and disabled for life. All of that cuts costs. It's not rocket surgery.
The MLR requirement caps non-medical expenditures at 20% of net direct written premium. Preventive care cuts costs, but it cuts medical expenditures. The resultant cut in medical expenditures triggers mandatory cuts in non-medical expenditures to ensure compliance with the MLR. The non-medical expenditures, like personnel and IT systems, are partially a factor of the number of people covered. With no untapped pool of uninsured (thanks to the individual mandate) insurers can't bring on new customers to supplement the non-medical revenue stream. That will result in job losses and worse service.
EX) Insurer A has $100,000,000 in premium and $80,000,000 in medical expenses. Non-medical expenses are $18,000,000 and profit is $2,000,000. The premium is $1,000/year per person (So 100,000 people are plan participants).
Insurer A institutes a wellness plan that saves 20% on medical costs. Medical expenses are now $64,000,000. The ACA works exactly as intended and the insurer refunds $20,000,000 in premium to maintain the 80% MLR. Each insured paid $800 after rebate. That leaves $16,000,000 for non-medical expenses and profit. Except non-medical expenses are $18,000,000. Many of those non-medical expenses can't be properly shunted. Then number of policyholders has remained constant and Insurer A needs just as many people to process claims, run the three accounting systems (GAAP, IRS, and SAP), etc. That means that the ACA again creates pressure to not lower the costs of claims.
What? There's inefficiencies in the non-medical expenses? Close those inefficiencies up. It'll just cost tens of thousands of jobs when the economy is trying to pull itself out of the toilet.