Heads You Win, Tails I Lose

It is November in northeast Ohio. Homeowners are faced with an annual decision – buy a new snow shovel, buy/tune up the snow plow, or hire a plowing service. I was lucky enough to have always had a snow service when I had my house in Shaker Heights.

For $250 a guy in a pick-up truck would magically appear every time there was as little as 2 inches of snow on my drive. He would clear the drive and make it safe for me and my family. Sometimes he would even sweep the snow off the walkway.  $250 for six months. If it snowed only three times – $250.  If it snowed 30 times – $250. I wasn’t purchasing the number of times he visited. I was buying peace of mind and security.  And if it never snowed in Shaker Heights?  Let’s not be silly.  One year’s easy winter would surely be followed by a snow belt classic.

If you believe, as I do, that the Patient Protection and Affordable Care Act is designed to change who pays for health care in our country, then you had been waiting anxiously for yesterday’s decision from the Obama administration. Florida has aggressively fought the president’s legislation from day one. The latest salvo was a special request for a waiver of the 80 percent Minimum Loss Ratio (MLR) regulation.  his special waiver has required a mound of paperwork and nearly a year of preparation.

And the verdict from the Centers for Medicare and Medicaid Services was, drum roll please, come back in 30 days.

First, what is an 80 percent Minimum Loss Ratio? In the simplest of terms it means that for ever dollar of premium an insurance company receives, it must spend 80 cents on health care claims. That leaves 20 cents for taxes, administration, reserves, marketing, advertising, and profits. If the consumer has a good year and has fewer claims, the law requires the insurer to issue a rebate of the excess premiums. If the consumer has a really bad year, oh well.

I think you can see where this is going. Most of my clients are small businesses with fewer than 10 employees. Some have only one or two employees. Many of my groups have little to no claims per year, while several of them more than make up the difference.

If a small business consists of three families, each paying $1,000 per month, we have an annual premium of $36,000. What happens if one of the spouses has a quadruple bypass at $180,000? Where does the insurer get that money if it is returning excess premiums each year to the healthy clients?

The goal is to have a loss ratio between 65 percent and 80 percent. This goal is for the entire book of business, not on a client-by-client basis. We are pooling the risk, sharing the possibility of major accidents and illnesses among a large group of people. The MLR regulation effectively ends that. And in the end, it effectively ends private major medical insurance.

Insurers are threatening to pull out of the states that don’t get the federal waiver.  At the very least, they will be forced to significantly restructure their product offerings. It is not an idle threat. This is all part of the process that began in March of 2010.

The Supreme Court will soon hear arguments about the individual mandate, a concept championed by Newt Gingrich and Bob Dole in the early 1990s and pilloried by the Republicans today. This is a sideshow. The Minimum Loss Ratio rulings will have far more impact on who pays for your health care in 2015.

I could have purchased a "pay as I go" snow service when I was a homeowner.  What I couldn’t afford back then and can’t afford now is  "pay as I go" health care.