5 ms·

Aren't insurance rates regulated meaning if they payout a smaller amount than expected the rates will go down next year?

by ipaddr 5y ago

saalweachter 5y ago
Now; I think the "medical loss ratio" requirements were one of the most important features of the ACA. One of the worst offenders from the before-times was an insurance plan targeted at college students that had a 10% MLR.
- kristjansson 5y ago
  To save those looking it up: medical loss ratio is the fraction of premiums an insurer spends on actual healthcare expenses. 10% means 90 cents of every dollar paid in premium goes to admin/profit/etc.
- munk-a 5y ago
  I wonder how MLRs interact with subsidies, backroom deals and manufacturer rebates - if an payer can inflate their MLR by double paying for a medication - but then they get a rebate back for half the cost they paid will MLR tracking catch that? Payers often get incentivized to promote certain drugs via manufacturer kickbacks and I wonder if this system is also used to run around MLR requirements.
deleted 5y ago
[deleted]
monocasa 5y ago
So that encourages greater payouts more or less synced with greater premiums in order to increase year over year real profits. And given that the payouts are very nearly a function of how hard the insurance company can negotiate, they can simply choose to call off the negotiations when they reach their target amount.
- Retric 5y ago
  Only up to a point, they still accept or recheck claims arbitrarily to get closer to their targets. Worse they have incentives to decrease efficiency by increasing paperwork etc. Private medical insurance in the US is a horridly inefficient system. Separating the claims process from insurance companies hands might help, but their incentives are never going to line up with consumers.
  - lotsofpulp 5y ago
    This is not remotely true.
  - dllthomas 5y ago
    > Worse they have incentives to decrease efficiency by increasing paperwork etc. Money spent on paperwork comes out of the same pile as profit. The MLR cap preserves incentive to reduce paperwork, wherever premiums and payouts sit.
    - Retric 5y ago
      Not internal paperwork. Think in terms of industry wide collusion not a single insurance company. If lobbing or an industry group can drive up healthcare costs via say paperwork or regulations then every health insurance company is “forced” to raise premiums and as the maximum profit per premium ratio is fixed that also increases the total possible industry wide profit. Of course insurance companies are also in competition so they have individual incentives to keep premiums cost competitive.
      - dllthomas 5y ago
        I think even in terms of industry-wide collusion, the push of an MLR cap would be to decrease (money spent on) paperwork. With R = revenue, P = profit, A = administrative expenses, and M = medical expenses, we have: R = P + A + M which we can rearrange a little bit to get P = R - M - A From the point of view of an individual company, clearly increasing our own expenses means less profit: P₂ = R - M - (A + δ) = P - δ But, as you say, if we force everyone to do likewise the situation is better because we can raise prices to raise revenue: P₃ = (R + δ) - M - (A + δ) = P This holds whether or not we have an MLR, but in either case assumes that demand is sufficiently inelastic that we can raise prices enough to make δ more revenue (it won't be a matter of simply raising prices by δ/(number of customers) because some customers may chose to purchase less insurance), and at best it puts is right back where we started. Does the MLR cap have an impact? MLR = M / R MLR₃ = M / (R + δ) MLR₃ < MLR By raising our revenues to compensate for the additional expense, we find ourselves with a lower MLR. If we are not near the cap this has no effect; focusing on the other case we are forced to do something to raise the MLR. Where does that come from? Recall our present situation: P = (R + δ) - M - (A + δ) We can lower P or A, but our whole question here is whether we can raise P by raising (everyone's) A so doing the former defeats our purpose and the later contradicts our assumption. We are stuck raising M and further raising R (if market conditions allow it). In a sufficiently inelastic market this is possible, but I really don't see the case where we've forced some extra slop that allows us to raise profit. Of course if I believe that my company is better able to handle the new paperwork than my competitors, that could help - but if the whole industry believes that's the case then most of them are wrong, and in any event I believe this incentive is weakened not strengthened by the MLR cap. If paperwork keeps new entrants out of the market, that is something current participants can probably agree on, but that's true in any case and I don't see how the MLR cap makes it stronger. I don't think this analysis changes if we pull executive compensation out of "administrative expenses" and treat it as something we're maximizing in addition to (or instead of) profit.
joshAg 5y ago
for admitted policies, usually yes. But it's not just that the rate for the next year goes down. Premium payments have to be refunded too.

Aren't insurance rates regulated meaning if they payout a smaller amount than expected the rates will go down next year?

by ipaddr 5y ago

Aren't insurance rates regulated meaning if they payout a smaller amount than expected the rates will go down next year?

saalweachter 5y ago

Now; I think the "medical loss ratio" requirements were one of the most important features of the ACA. One of the worst offenders from the before-times was an insurance plan targeted at college students that had a 10% MLR.

kristjansson 5y ago
To save those looking it up: medical loss ratio is the fraction of premiums an insurer spends on actual healthcare expenses. 10% means 90 cents of every dollar paid in premium goes to admin/profit/etc.
munk-a 5y ago
I wonder how MLRs interact with subsidies, backroom deals and manufacturer rebates - if an payer can inflate their MLR by double paying for a medication - but then they get a rebate back for half the cost they paid will MLR tracking catch that? Payers often get incentivized to promote certain drugs via manufacturer kickbacks and I wonder if this system is also used to run around MLR requirements.

deleted 5y ago

[deleted]

monocasa 5y ago

So that encourages greater payouts more or less synced with greater premiums in order to increase year over year real profits. And given that the payouts are very nearly a function of how hard the insurance company can negotiate, they can simply choose to call off the negotiations when they reach their target amount.

Retric 5y ago
Only up to a point, they still accept or recheck claims arbitrarily to get closer to their targets. Worse they have incentives to decrease efficiency by increasing paperwork etc. Private medical insurance in the US is a horridly inefficient system. Separating the claims process from insurance companies hands might help, but their incentives are never going to line up with consumers.
- lotsofpulp 5y ago
  This is not remotely true.
- dllthomas 5y ago
  > Worse they have incentives to decrease efficiency by increasing paperwork etc. Money spent on paperwork comes out of the same pile as profit. The MLR cap preserves incentive to reduce paperwork, wherever premiums and payouts sit.
  - Retric 5y ago
    Not internal paperwork. Think in terms of industry wide collusion not a single insurance company. If lobbing or an industry group can drive up healthcare costs via say paperwork or regulations then every health insurance company is “forced” to raise premiums and as the maximum profit per premium ratio is fixed that also increases the total possible industry wide profit. Of course insurance companies are also in competition so they have individual incentives to keep premiums cost competitive.
    - dllthomas 5y ago
      I think even in terms of industry-wide collusion, the push of an MLR cap would be to decrease (money spent on) paperwork. With R = revenue, P = profit, A = administrative expenses, and M = medical expenses, we have: R = P + A + M which we can rearrange a little bit to get P = R - M - A From the point of view of an individual company, clearly increasing our own expenses means less profit: P₂ = R - M - (A + δ) = P - δ But, as you say, if we force everyone to do likewise the situation is better because we can raise prices to raise revenue: P₃ = (R + δ) - M - (A + δ) = P This holds whether or not we have an MLR, but in either case assumes that demand is sufficiently inelastic that we can raise prices enough to make δ more revenue (it won't be a matter of simply raising prices by δ/(number of customers) because some customers may chose to purchase less insurance), and at best it puts is right back where we started. Does the MLR cap have an impact? MLR = M / R MLR₃ = M / (R + δ) MLR₃ < MLR By raising our revenues to compensate for the additional expense, we find ourselves with a lower MLR. If we are not near the cap this has no effect; focusing on the other case we are forced to do something to raise the MLR. Where does that come from? Recall our present situation: P = (R + δ) - M - (A + δ) We can lower P or A, but our whole question here is whether we can raise P by raising (everyone's) A so doing the former defeats our purpose and the later contradicts our assumption. We are stuck raising M and further raising R (if market conditions allow it). In a sufficiently inelastic market this is possible, but I really don't see the case where we've forced some extra slop that allows us to raise profit. Of course if I believe that my company is better able to handle the new paperwork than my competitors, that could help - but if the whole industry believes that's the case then most of them are wrong, and in any event I believe this incentive is weakened not strengthened by the MLR cap. If paperwork keeps new entrants out of the market, that is something current participants can probably agree on, but that's true in any case and I don't see how the MLR cap makes it stronger. I don't think this analysis changes if we pull executive compensation out of "administrative expenses" and treat it as something we're maximizing in addition to (or instead of) profit.

joshAg 5y ago

for admitted policies, usually yes. But it's not just that the rate for the next year goes down. Premium payments have to be refunded too.