That was a good segment. Commercial insurers care more that the revenues, profits, and costs fit within their calculated projections. And as long as it is, everything is gravy. Don’t let the prior auths fool you wrt their intentions.
NBER Working Paper No. 23353; Cost of Service Regulation in U.S. Health Care: Minimum Medical Loss RatiosBy Steve Cicala, Ethan M.J. Lieber, and Victoria MaroneNational Bureau of Economic Research, April 2017AbstractPaying for health care is a loss for insurers. They get to keep for their...
pnhp.org
“An extremely important unintended consequence of fixed medical loss ratios has been mentioned here before, but seems to have escaped the mainstream media, so it is being repeated: Once the MLR rules are established, the primary method by which insurers can increase the services they sell us, while increasing their profits, is by increasing gross revenues, since they are guaranteed a fixed percentage of those revenues. The most effective way to increase gross revenues is to increase the amount of health care services authorized and paid for.
If the insurers change provider incentives to double the amount of health care that is being delivered, they can double their own total revenues, keeping even more as profit because of the smaller marginal administrative costs of paying for more care. This incentive of the insurers to increase total health care spending is the exact opposite of the reform goal of slowing future health care cost increases.
All of this is good business. But that’s the problem.
In previous messages it was pointed out that the more the insurers pay out in health benefits, the more they can expand their administrative expenses and especially their profits. They get to keep 15 to 20 percent of the premiums.
How do you pay out more in health benefits? Simple. Negotiate higher prices with physicians and hospitals. Maximize benefits covered. Authorize more care; be very conservative with rejecting prior authorization requests. Avoid adjusting claims and avoid claim denials. Do not investigate over-utilization or frank health care fraud. Then have your actuaries calculate the premiums to include 15 to 20 percent over the inflated health care spending. Make that a little bit over 15 to 20 percent which will then have to be refunded but will ensure that the full padded margin is received.
As with so many policy flaws of the Affordable Care Act that we have reported here, there is some disbelief that the insurers would do that. But isn’t that the way markets work? Maximize revenues and profits? There is nothing illegal here.“