Unbeknownst to a vast majority of people is a gigantic show stopper that was part of Obamacare.
The Affordable Care Act requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement, also known as the Medical Loss Ratio (MLR).
Wow. You don't understand the insurance industry do you? Medical Loss Ratio's have been in use for as long as I have been in the business--so that is more than twenty years. In my state, they have always been used when approving rate increases. The Medicare Supplement market was standardized in the 1990's. MLR's were established at that time and the Medicare supplement market is the most profitable market in the health insurance industry. MLR's have been in place for group insurance throughout my entire career. Most Americans get their health insurance via a group policy that have had required MLR's of eighty percent for as long as I can remember.
Insurance is a pretty sweet gig. It is the only business in the world where you can slap a label on "profit" and call it a "loss reserve" and not have to pay taxes on it. Better yet, you don't even have to pay taxes on any earnings you can get out of that "loss reserve". It is the very reason MLR's are calculated and used by regulators to justify rate increases. Let me explain how it works for most large companies.
First, the company is "self-insured", which--like most names today is very misleading. The company pays an entity to oversee the plan. The company contributes money into the plan and pays for all the health care claims of the employees up to a certain amount, their loss limit. If claims exceed that amount, the insurance company pays it. If they do not exceed that amount, the company gets to keep the excess and call it a "loss reserve". They get to write it off as an expense and yet the money is sitting somewhere EARNING interest TAXFREE.
Now used to be, companies would collect "premiums" from their employees. Turn a profit on the whole insurance bit and build up a cash reserve over years. In the end, the company executives would raid the cash reserve and use that money to take the company private. They paid no taxes on the "profit" from the insurance they "sold" their employees. They paid no taxes on the earnings of those profits. And then, they use the money, funded by the employees to buy the company itself.
Can't do it anymore. The bomb in the ACA was not the use of the MLR. The bomb in the ACA was the ruling that those "reserves" were not the companies money--they belonged to the employees. And now those companies have a fiduciary responsibility to the EMPLOYEES, and they can't take the EMPLOYEE"S money to enrich themselves. And even if they are not self-insured, the ACA requires their provider to rebate to them, not the beneficiaries, any shortfall to the MLR, with the same fiduciary responsibility as a self-insured entity.
