A compromise provision in the Senate health care bill that requires insurers to rebate beneficiaries if they fail to spend 90% of premium dollars on medical care could add new costs to the federal government, limiting health reform’s deficit reductions. Sen. Jay Rockefeller (D-WV) inserted the new medical loss ration (MLR) requirement (for insurers participating in the small or individual group markets) during the Gang of 10 public option negotiations, but a new directive from the Congressional Budget Office (CBO) may force Majority Leader Harry Reid (D-NV) to abandon the provision and could further undermine the now defunct compromise.
The CBO’s “harsh assessment” concluded that the 90% MLR requirement — which insurers would only have to maintain until 2014 — “would devastate the industry”:
A proposal to require health insurers to provide rebates to their enrollees to the extent that their medical loss ratios are less than 90 percent would effectively force insurers to achieve a high medical loss ratio. Combining this requirement with the other provisions of the PPACA would greatly restrict flexibility related to the sale and purchase of health insurance. In CBO’s view, this further expansion of the federal government’s role in the health insurance market would make such insurance an essentially governmental program, so that all payments related to health insurance policies should be recorded as cash flows in the federal budget.
The question of whether certain purchases of private health insurance “should be treated as part of the federal budget” is not insignificant. During President Clinton’s push to pass comprehensive health care reform, the CBO decided that “payments to and from the ‘health alliances’ should be included in the accounts of the federal government.” The decision artificially increased the bill’s score, dooming its chances in Congress.
Rockefeller argues that insurers that receive government subsidies should be required to spend those dollars on health care, not administrative overhead or profit. The 90% ratio replaced an existing provision that required insurers to maintain a medical loss ratio of 85%.