There was much fanfare in the mainstream media over news that Americans saved $1.5 billion thanks to the Affordable Care Act, according to a study by the New York-based Commonwealth Fund. Those savings came about as a result of a new ACA regulation requiring health insurance companies to spend at least 80 percent of premium dollars on actual health care. This financial measure is known as the medical loss ratio (MLR). Health insurance companies that didn’t meet the new rule had to send back the $1.5 billion in the form of rebates to consumers. On its face, this sounded like a win for consumers. However, the real effect of the new MLR rule was more mixed, the study concluded. Although consumers with health coverage in the individual market did see some benefit, for those in small and large-group plans, not so much:
Although the MLR rule, along with other market and regulatory factors, prompted reductions in administrative expenses in all three market segments, in the group markets it appears that insurers were able to retain those cost reductions in the form of increased profits, rather than passing them on to consumers in the form of reduced premiums. By contrast, both administrative costs and profits dropped in the individual market, indicating that consumers benefitted in the form of restrained premium increases. Premiums did increase somewhat, because of the growth in medical costs, but the increases were less than medical cost increases.
Los Angeles-based Consumer Watchdog, pointed to the results of the study as proof that the government needs to do more to regulate premium rate increases.
“Absent rate regulation, health insurers are gaming the health reform law to keep premiums high and increase profits. Health insurers should be required to open their books and justify their charges – including why they haven’t passed on to consumers nearly one billion dollars in savings,” said Carmen Balber, Washington DC director for Consumer Watchdog.
Unlike in some other states, California’s insurance commissioner doesn’t have the power to reject unreasonable rate hikes. Assembly Bill 52, authored by Assemblymember Mike Feuer, would give the insurance commissioner that regulatory authority. Unfortunately, the bill could never make it out of the state Senate, and Feuer decided to shelve it last year. Now that state Democrats are on their way to gaining a supermajority in both houses of the state legislature, there may be hope for a revival of AB 52.
But rate regulation isn’t a panacea. It’s great that some consumers are getting financial relief from Obamacare. However, we can do much better. California could do away with insurance rates altogether by providing health care to all residents as a public service rather than as a commodity. The savings to our state would be far greater.