If you research the actual facts about Medicare, as we did as we turned 65, you discover that one most remarkable fact is that the overhead costs of the program, i.e. costs that do NOT go to actual coverage of medical costs, is only 5%. Let me repeat that and spell it out: ONLY FIVE PERCENT.
Contrast that with private for profit insurance. The overhead costs paying expenses that are not actually paid on health and medical claims has been documented to range higher than 30%, in some egregious cases as high as 50%. In other words, for every dollar an American citizen paid into health insurance, over a third of their contribution was lining the pockets of the CEOs and stockholders, and insuring high profit margins.
In addition, before the passage of the Affordable Care Act, 19 States did not have any laws regarding medical loss ratios, or the percentage of premium dollars spent on medical care and health care quality improvement, rather than on administrative costs. Yet, over 20 percent of consumers who purchased coverage in the individual market were in plans that spent more than 30 cents of every premium dollar on administrative costs. An additional 25 percent of consumers in this market were in plans that spent between 25 and 30 cents of every premium dollar on administrative costs. And in some extreme cases, insurance plans spent more than 50 percent of every premium dollar on administrative costs.
After all, we have to keep paying those inflated CEO salaries, and insuring massive profits to stock holders.
This of course goes along way to explain why the for profit health insurance has done everything in its power to either deny coverage up front, e.g. preexisting conditions; or to find any loophole whatsoever to deny claims for patients who are legitimated insured and entitled to coverage.
Rich Ungar, writing Fprbes Magazine, covers the significance of the part of the health care law passed by Obama and the Democrats that kicks in this month, December, 2011. It is designed to insure one simple thing: that the medical loss ratio, as it is called, will be 80-85% of all income spent on medical coverage; and only 15-20% on all other overhead and profit costs.
At the end of the day, the law is – in the main – little more than a successful effort to put an end to some of the more egregious health insurer abuses while creating an environment that should bring more Americans into programs that will give them at least some of the health care coverage they need.
There is, however, one notable exception – and it’s one that should have a long lasting and powerful impact on the future of health care in our country.
That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.
This is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare—but not one that is going to lead to the death of American consumers. Rather, the medical loss ration will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.
Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid. If they could, we likely would never have seen the extraordinary efforts made by these companies to avoid paying benefits to their customers at the very moment they need it the most.
Today, that bomb goes off.
Today, the Department of Health & Human Services issues the rules of what insurer expenditures will—and will not—qualify as a medical expense for purposes of meeting the requirement.