Health care reform is about to deliver to consumers one of its most valuable benefits so far. A provision that takes effect in January prevents health insurers from directing big chunks of premium dollars to excessive executive pay packages or bloated overhead and requires that more money go to medical care and health care quality improvement. Yet Florida Insurance Commissioner Kevin McCarty is contemplating asking for a three-year waiver to give insurers extra time to adjust to the new rules, which means Floridians would continue paying more for less. That would be a mistake that would undermine reform.
Too many consumers who purchase health coverage on the individual insurance market have been paying for expenses that have nothing to do with health — such as high corporate salaries, lavish bonuses, huge profits and blitz marketing campaigns. Government officials estimate at least 45 percent of people with individual coverage are in plans that spend 25 cents or more of every premium dollar on non-health-care related expenses, and in some plans it's more than 50 cents of every dollar.
Now, finally, there are some better protections for the consumer who doesn't have the negotiating leverage of a large group plan.
A rule recently issued by the U.S. Department of Health and Human Services implements the "medical loss ratio" provision of the new health care reform law. Health insurers for individuals and small groups will have to spend at least 80 percent of premiums on patient care and improving health care quality, while large group insurers will have to spend at least 85 percent. Insurers that don't meet the new standard — which is an aggregate figure based on an insurance company's total premiums and spending within a state — will have to pony up rebates. People could see checks in the mail in 2012.
McCarty, who heads the Florida Office of Insurance Regulation, had expressed an intention in November to ask the HHS for a waiver so the new rules wouldn't apply here until 2014. However, the OIR now says no waiver has been requested and the issue is "under review." Florida law now imposes a loss ratio of 65 percent to 70 percent, a substantial difference from the new federal mandate and one that is too generous to insurance companies. The nonprofit Blue Cross Blue Shield of Florida, the state's largest insurer, expects to meet the new national standards. That suggests that for-profit insurers are directing too much toward profits and executive pay.
There is one health insurance product that the HHS has granted a temporary reprieve. So-called mini-med policies, which provide a small amount of insurance with caps of $5,000 or $10,000 per year, would essentially escape the rebate rule next year, but they would have to abide by the new reporting requirements. These plans are typically sold to employees in low-paying jobs, and they tend to have high administrative costs relative to claim payouts. But if the point is to ensure that consumers receive value for their health insurance dollar, these policies also should conform to the new rule after the year is up.
Once enrollees begin to enjoy the benefits of the "medical loss ratio" protection, through insurance rebates, lower premiums or enhanced benefits, they won't want to give it up. Floridians should not have to wait.