[Senate Hearing 113-500]
[From the U.S. Government Publishing Office]
S. Hrg. 113-500
DELIVERING BETTER HEALTH CARE VALUE
TO CONSUMERS: THE FIRST THREE YEARS
OF THE MEDICAL LOSS RATIO
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HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MAY 21, 2014
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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Washington, DC 20402-0001
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
MARK PRYOR, Arkansas MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK BEGICH, Alaska DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii TED CRUZ, Texas
EDWARD MARKEY, Massachusetts DEB FISCHER, Nebraska
CORY BOOKER, New Jersey RON JOHNSON, Wisconsin
JOHN E. WALSH, Montana
Ellen L. Doneski, Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
C O N T E N T S
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Page
Hearing held on May 21, 2014..................................... 1
Statement of Senator Rockefeller................................. 1
Report from the Office of Oversight and Investigations
Majority Staff dated May 21, 2014 entitled ``Delivering
Consumers Better Health Care Value for their Premium
Dollars: the Success Story of the Minimum Medical Loss
Ratio Law''................................................ 3
Statement of Senator Thune....................................... 24
Prepared statement of John Ralston, Hampton, Virginia............ 27
Statement of Senator Klobuchar................................... 36
Statement of Senator Johnson..................................... 51
Statement of Senator Scott....................................... 54
Witnesses
Wendell Potter, Analyst, Center for Public Integrity and former
Health Insurance Executive..................................... 28
Prepared statement........................................... 30
Mark A. Hall, Professor of Law and Public Health, Wake Forest
University..................................................... 32
Prepared statement........................................... 34
Katherine Fernandez, Houston, Texas.............................. 36
Prepared statement........................................... 38
Grace-Marie Turner, President, Galen Institute................... 42
Prepared statement........................................... 43
Appendix
Article dated May 12, 2014 from KMOV.com Staff entitled
``Whistleblower: ACA contractor in Wentzville pays employees to
do nothing''................................................... 67
Article dated May 11, 2014 from Politico by Jennifer Haberkorn
and Kyle Cheney entitled ``$474M for 4 failed Obamacare
exchanges''.................................................... 67
DELIVERING BETTER HEALTH CARE VALUE
TO CONSUMERS: THE FIRST THREE YEARS
OF THE MEDICAL LOSS RATIO
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WEDNESDAY, MAY 21, 2014
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:53 p.m. in room
SD-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. Welcome, all. This committee hearing comes to
order. So today, and the Ranking Member does not have to sort
of hear this statement, but I will just give it. He can put
plugs in his ears. Today's hearing is about an Obama success
story.
Senator Thune. Go ahead. Proceed.
The Chairman. It is about a consumer protection provision
in the law, which is already existing in one way or another in
34 states, so it is not exactly a new idea. They all have
different standards, so you cannot get anything going
nationally. But it is a consumer protection provision in the
law that has already saved consumers billions of dollars. Now,
in South Dakota that is not a lot of money, but in West
Virginia, that is big time.
Whether you call it the MLR Law or the 80/20 rule that is
responsible for hundreds of thousands of rebate checks,
including one to my dear sister, that American families and
small businesses have been receiving from their health
insurance companies for the past 2 years. That is not something
that you see every day, an insurance company giving a premium
dollar back to its customers.
I understand there are people in this country--probably not
in this room, but potentially--who find it hard to concede that
anything good has or will come from the Affordable Care Act.
But I think it is pretty clear at this point that this piece of
law is working, and it is on the way. It is not yet everything
we hope for because there have to be more adjustments. That is
in the nature of really, really important bills. But it is
working, and people are beginning to understand that.
Now, to understand why we have this law, you have to
remember that the commercial health insurance market worked
before we passed the ACA. It was a market whose rules were
rigged against consumers. Insurers could purge sick people from
those rolls--I had many examples of that from my own experience
in West Virginia--and deny coverage to people with what they
call preexisting conditions.
In the old health insurance marketplace, it was very
difficult for consumers to compare products or choose plans
because the insurers would not give us clear information about
coverage and about costs. The Commerce Committee's work back in
2009 played a key role in exposing yet another problem with the
health insurance market. Many of the policies health insurance
companies were selling to families and businesses, they just
were not giving any good value.
We used the industry's own data to make this point. We
looked at the percentage of every premium dollar health
insurance was spending on healthcare versus the percentage they
were spending on administration, commissions, dividends, and
other non-healthcare related items. In the health insurance
industry, this measurement is called medical ratio.
What we found back in 2009 was a mixed bag. In some
markets, insurers were efficiently spending 90 cents or more of
each premium dollar on patient care. Let that be understood.
Some were doing it right. But in other markets, especially the
market for the individual health insurance, the numbers were
shockingly low. Some insurance companies were pocketing as much
as 50 cents on every premium dollar.
We also found that large national insurers selling the same
products across states provided consumers in some states
substantially lower value for their premium dollars than in
other states. When we talked to industry experts, like Wendell
Potter, who is seated before me and Senator John Thune, we
learned that the big for-profit insurance companies carefully
tracked their MLRs and worked relentlessly to lower them. Their
thinking was pretty simple: the less they spend on healthcare,
the more they had for their shareholders. It was a zero sum
game that pitted patients against profits. And the patients
were not winning.
To counter this strong incentive to provide less care to
their consumers, we told the health insurance companies that
they needed to spend at least 80 cents of each premium dollar
on their consumers' healthcare, which would be measured, which
would be understood and tracked at HHS, 85 percent in the large
group market. If they spent less than 80 percent on patient
care, they had to rebate a proportion of the premium payments
back to their customers.
This was not a crazy, made-up idea in Washington. Thirty-
four states already had minimum medical loss ratio laws on the
books. But because the requirements varied from state to state,
health insurance companies could still sell low value products
in many markets. And we have to do this nationally. We have to
make sure that it is fair for everybody.
As always happens when you propose a pro-consumer reform
like this, the industry went berserk and predicted dire
consequences. Oh, boy, did they do that. A coalition of health
insurance companies, agents, and broker groups, and industry
friendly insurance commissioners fought this law at every step
of the way. And I have to insert here, Senator Klobuchar, that
West Virginia at the time had this wonderful person called Jane
Cline, who is chairing the National Association of Insurance
Commissioners. And she, along with Wendell Potter and others,
helped block this effort to undo what we had done.
I will not take time now to detail how much time and money
the opponents of the MLR law spent trying to kill it, but my
staff has prepared a report on this legislative history of the
MLR law, which I now ask unanimous consent to place in the
record of this hearing.
[The information referred to follows:]
Committee on Commerce, Science, and Transportation
Office of Oversight and Investigations--Majority Staff
Delivering Consumers Better Health Care Value for their Premium
Dollars: the Success Story of the Minimum Medical Loss Ratio Law
Staff Report for Chairman Rockefeller--May 21, 2014
Table of Contents
Executive Summary
I. The Value of Medical Loss Ratio Requirements
A. The Role of the MLR
B. The Affordable Care Act's Medical Loss Ratio Requirements
C. The ACA MLR Provisions Have Benefited Consumers and Small
Businesses
1. Insurers Have Rebated Hundreds of Millions of
Dollars to Consumers and Small Businesses
2. Improved Insurer Efficiencies Have Resulted in
Additional Savings for Consumers and Small Businesses
3. Minimum National MLR Standard Means Reduced State-
by-State Subsidization
4. MLR Requirements Have Promoted Transparency
II. A History of the ACA MLR
A. The Health Reform Debate and MLR
1. June 2009: Commerce Committee Hearing
2. August 2009: Chairman Rockefeller's Letters to
Insurance Company Executives
3. September-October 2009: Senate Committee on Finance
Markup of Health Reform Legislation
4. November 2009: Letter from Chairman Rockefeller to
CIGNA
5. December 2009: Senate Passage of Health Reform
Legislation with MLR Provisions
B. Implementation of the Affordable Care Act MLR Provisions
1. Elements of the MLR Formula
2. NAIC Implementation Process
a. AApril 15, 2010, Committee Majority Staff
Report
b. May 7, 2010, Letters from Chairman
Rockefeller to Secretary Sebelius and NAIC
Commissioner Cline
c. July 20, 2010, Letter from Chairman
Rockefeller to Commissioner Cline
d. October 14, 2010, Letter from Chairman
Rockefeller to the NAIC
3. HHS Rulemaking Process
a. Activities That Improve Health Care Quality
b. Agent and Broker Fees
4. 2011: Additional NAIC Review Regarding Excluding
Agent and Broker Commissions
a. March, 15, 2011, Letter from Chairman
Rockefeller to Commissioner Susan E. Voss
b. Spring 2011 NAIC Meeting Austin, Texas
c. May 24, 2011, Committee Majority Staff
Report on 2010 MLR Rebates
d. November 21, 2011, Letter from Chairman
Rockefeller to Commissioner Kevin McCarty
e. NAIC Endorses Modified McCarty Resolution
III. Conclusion
Exhibits
Exhibit A: Correspondence of Chairman Rockefeller
Exhibit B: Committee Majority Staff Reports
______
Executive Summary
One of the important new consumer protections in the 2010
Affordable Care Act (ACA) is the provision that gives health insurance
companies a strong financial incentive to reduce their administrative
costs and spend a larger part of each premium dollar on high-quality
health care for their policyholders.
Using a financial metric already very familiar to insurance
carriers and state regulators--the ``medical loss ratio'' (MLR)--the
law encourages health insurance companies to spend at least 80 percent
of their individual and small group policyholders' premiums on medical
care or on improving the quality of their care; for large group
policies, the target level is 85 percent. The purpose of this law is to
counteract health insurance companies' strong financial incentive to
maximize profits, even at the expense of their customer's health care.
Companies whose spending on health care-related expenses falls below
these ``minimum MLR'' levels are required to pay rebates to their
policyholders.
The law also contains important reporting and transparency
provisions. For the first time, it requires health insurance companies
to publicly report--by market segment and by state--how much of each
insurance premium dollar they are spending on health care versus other
expenditures such as marketing, agent and broker commissions, overhead,
and profits. Hearings and investigations conducted by Chairman
Rockefeller in the Commerce Committee in 2009 established a very clear
record that health insurance companies were not voluntarily providing
American consumers the segment and state-level information they needed
to make informed choices about buying health care. These reporting
provisions give consumers and policymakers unprecedented amounts of
information about the value of the health insurance products sold in
their communities.
During the consideration and implementation of the ACA, health
insurance companies and groups representing health insurance agents and
brokers aggressively opposed the MLR language, which has come to be
known as the ``80/20 rule.'' They predicted that the law would harm
patients by discouraging investment and innovation, and by reducing
health insurance information and the product choices available to
consumers. After enactment of the ACA, the health insurance industry
also heavily lobbied Congress, the Department of Health and Human
Services (HHS), and the National Association of Insurance Commissioners
(NAIC) to make adjustments to address these concerns.
During a sometimes contentious implementation process, Chairman
Rockefeller and other consumer advocates urged regulators to reject
industry proposals that were inconsistent with Congress's intent and
reduced the law's potential benefits for consumers. In particular,
consumer advocates fought back a last-ditch effort in 2011 to remove
agent and broker fees from the denominator of the MLR formula--a
seemingly technical change that would have resulted in increased
payments to brokers and agents at the expense of dollars being spent on
customers' health care and costing consumers hundreds of millions of
dollars in lost rebates.
Industry's dire predictions have not materialized, and two years of
data shows that the law has worked as the authors of the law intended.
Under the new minimum MLR requirements, health insurance companies--
especially those selling products in the individual market--have
increased the value of their products by offering plans that pay more
for health services instead of other expenditures. Since ACA enactment,
minimum MLRs have risen across all market segments. The table below
represents this aggregated rise in MLRs by market segment, for the six
largest for-profit health insurers.
Publicly Traded Health Insurance MLR, 2012 versus 2011
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2011 2012 Change
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Individual 77.8% 81.2% 336bp
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Small Group 77.2% 77.7% 50bp
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Large Group 84.0% 85.2% 115bp
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Consumers have benefited from these improvements in several ways:
Rebates. Millions of American consumers and businesses have
received $1.6 billion in rebate checks from their health
insurance companies because the insurers' coverage fell below
the 80 and 85 percent MLR thresholds. This figure does not
include 2013 rebates, which will be announced later in 2014.
Other Consumer Savings. Millions more have benefited from
the changes health insurers have been making to avoid paying
rebates. For example, reports issued by the non-partisan
Commonwealth Fund have found that, in the first two years of
the MLR requirements, insurers reduced overhead by a total of
$1.75 billion--changes that ultimately reduce the cost of
insurance to consumers and the government.
Reduced State-by-State Subsidization. Prior to the ACA,
health insurers could offer similar health plans in different
states but with vastly different MLRs, and companies could make
greater profits from plans offered in states that had limited
or no MLR requirements. The ACA's new national minimum MLR
requirements incentivize health insurers to provide
policyholders appropriate value for their premium dollars--no
matter what the consumer's state of residence.
Increased Transparency. A new trove of data regarding
insurance plan performance is now available to help academics,
health policy experts, financial analysts, and others
understand how the market is working and where improvements are
most necessary.
I. The Value of Medical Loss Ratio Requirements
A. The Role of the MLR
Consumers purchase health insurance for access to emergency and
preventative medical services and to protect against the financial
risks associated with a traumatic medical event. Health insurers
collect premiums from policyholders and use those funds to pay for
member health care claims, as well as administer benefit coverage,
market health insurance products, and pay dividends to investors. The
medical loss ratio (MLR) is the proportion of health care premium
dollars paid by consumers that is ultimately spent by insurers on
health care costs, versus insurers' other expenses. For example, an
insurer with an 80 percent MLR spends 80 percent of its policyholders'
premiums on medical care, while the remaining 20 percent goes to
expenses that do not directly benefit consumers, such as executive
bonuses, advertising costs, agent commissions, and profits.
The MLR is a measure that provides different functions for
different constituencies. For consumers, the MLR provides a means of
evaluating health plans competing for consumer business. The MLR
assists potential purchasers of insurance in assessing whether an
insurer is spending an appropriate portion of premiums on consumer
medical services. From a consumer's perspective, a higher MLR is an
indication of a health insurer spending more premium dollars on
services that have greater potential consumer benefits.
For investors in health insurance companies, on the other hand, the
MLR provides a measure of an insurer's potential profitability. From an
investor's perspective, a decrease in the MLR signals reduction in
expenditures on medical costs, and with an adequate control of other
indirect medical costs, the possibility for an increase in profit.
For both consumers and investors, segmenting MLR information by
insurance market type--individual, small group, and large group--
provides additional transparency into the insurance market.\1\ As noted
by Mark Hall, Professor of Law and Public Health at Wake Forest
University, the different insurance markets are ``as distinct in their
economic and legal characteristics as are mobile homes, condominiums,
and single-family homes.'' \2\ MLRs can also vary dramatically based on
product type; for instance, in the past MLRs typically have been higher
in larger group markets than in the individual market.\3\ In contrast,
plans marketed as ``limited benefit'' or ``mini-med'' typically held
lower MLRs than more comprehensive individual health insurance
plans.\4\
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\1\ American consumers are insured either through their employer, a
private health plan, Medicaid, Medicare, the Children's Health
Insurance Program (CHIP), the Veteran's Administration, or uninsured.
The Henry J. Kaiser Family Foundation, Health Insurance Coverage of the
Total Population (accessed May 12, 2014) (online at http://kff.org/
other/state-indicator/total-population/). In 2012, 78.5 million
consumers were in fully insured plans regulated by the MLR provision.
Carl McDonald and Sahil Choudhry, Citi, Managed Care: Nothing is More
Creative Than a Brilliant Mind with a Purpose, at 4 (Apr. 8, 2014). A
fully insured plan is one where the employer contracts with another
organization to assume financial responsibility for the enrollees'
medical claims and for all incurred administrative costs. Bureau of
Labor Statistics, Definitions of Health Insurance Terms (online at
http://www.bls.gov/ncs/ebs/sp/healthterms.pdf).
\2\ Mark A. Hall, HIPPA's Small-Group Access Laws: Win, Loss, or
Draw?, Cato Journal, at 72 (Spring/Summer 2002).
\3\ Senate Committee on Commerce, Science, and Transportation,
Majority Staff Report on Implementing Health Insurance Reform: New
Medical Loss Ratio Information for Policymakers and Consumers (Apr. 15,
2010). Exhibit A includes this report in addition to all other Commerce
Committee majority staff reports concerning the MLR, in chronological
order, beginning in 2010.
\4\ Timothy Jost, Implementing Health Reform: Fine-Tuning the
Medical Loss Ratio Rules, Health Affairs Blog (Dec. 3, 2011) (online at
http://healthaffairs.org/blog/2011/12/03/implementing-health-reform-
fine-tuning-the-medical-loss-ratio-rules/).
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Health insurers have historically resisted making disclosures of
their MLRs or the information relevant to calculating the insurer's
MLR. Prior to the Affordable Care Act (ACA), whether an insurer's MLR
data was publicly available depended on state regulation. Some states
collected and made MLR information available for insurance shoppers,
but many did not.\5\ In addition, MLR data provided by health insurers
to investors was not routinely made available by market segment.\6\
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\5\ See Letter from Chairman John D. Rockefeller to H. Edward
Hanway, Chairman and Chief Executive Officer, CIGNA, at 11 (Nov. 2,
2009). Exhibit B includes this letter in addition to all other
correspondence by Chairman Rockefeller concerning the MLR, in
chronological order, beginning in 2009.
\6\ Id.
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B. The Affordable Care Act's Medical Loss Ratio Requirements
The ACA \7\ includes MLR requirements designed to improve the value
consumers receive for their health insurance payments and promote
transparency in the health insurance market. Under the ACA, individual
and small group insurance plans must achieve an 80 percent MLR, while
large group plans must achieve 85 percent.\8\ The ACA also requires
that each insurer publicly disclose its MLR data, including premium
income and expenditures on medical claims, broken down by market and
state.\9\ The provision applies to all types of health insurers that
offer fully funded health plans, including non-profit and for-profit
health insurers and health management organizations (HMOs).\10\
Grandfathered health insurance plans are not excluded from the
requirement.\11\
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\7\ Sec. 2718 of Title XXVII, Part A of the Public Health Service
Act, as added by Sec. 10101(a) of Title X of the Patient Protection and
Affordable Care Act, Pub. L. 111-148 (2010) (hereafter ``PPACA MLR
provision'').
\8\ 45 C.F.R. Sec. 158.210 (2011).
\9\ 45 C.F.R. Sec. Sec. 158.110-120 (2011).
\10\ 45 C.F.R. Sec. 158.101 (2011). Self-funded plans (i.e., where
the employer or other plan sponsor pays the cost of health benefits
from its own assets) are not considered insurers and are therefore not
subject to the MLR provision. The MLR standard does not apply even when
an insurer administers the self-funded plan on behalf of an employer or
other sponsor. The Henry J. Kaiser Family Foundation, Explaining Health
Care Reform: Medical Loss Ratio (MLR) (Feb. 2012) (online at http://
kff.org/health-reform/fact-sheet/explaining-health-care-reform-medical-
loss-ratio-mlr/).
\11\ 45 C.F.R. Sec. 158.102 (2011). Grandfathered plans are those
that were in existence on or before March 23, 2010, and whose plan
design has stayed basically the same. They can enroll people after that
date and still maintain their grandfathered status, meaning that they
are not subject to requirements established by the ACA. Kaiser Health
News, FAQ Grandfathered Health Plans (Nov. 13, 2013) (online at http://
www.kaiserhealthnews.org/stories/2012/december/17/grandfathered-plans-
faq.aspx).
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Under the ACA, a health insurer is required to provide its
policyholders with rebates if the insurer does not meet the minimum
MLR. Rebates are calculated based on an insurer's MLR in a market
segment of a given state. Thus, while an insurer could exceed the
minimum MLR in a state's large group market, it could still owe rebates
to consumers if it fails to meet the MLR for the individual or small
group market in that state. The distribution of rebates depends on the
circumstances of the plan. Those consumers who are in the individual
market receive rebates directly from the insurer either in the form of
a check or as a reduction in future premiums.\12\ In the group market,
rebates are provided to the employer, who must use the rebate for the
benefit of its covered employees.\13\
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\12\ 45 C.F.R. Sec. 158.241 (2011).
\13\ 45 C.F.R. Sec. 158.242 (2011).
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C. The ACA MLR Provisions Have Benefited Consumers and Small Businesses
The ACA's MLR provisions already have created billions in savings
to consumers and small businesses by providing nearly $1.6 billion in
rebates and incentivizing insurers to reduce unnecessary health insurer
administrative costs and maintain lower premium rates.\14\ Further, the
reporting requirements of the MLR provisions promote increased insurer
transparency and accountability by ensuring that consumers and small
businesses have information they can use to measure plan performance
and inform insurance shopping decisions. These requirements also
provide for a rich source of data that assists experts in analyzing and
better understanding the health insurance market.
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\14\ Cynthia Cox, Gary Claxton and Larry Levitt, The Henry J.
Kaiser Family Foundation, Beyond Rebates: How Much are Consumers Saving
from the ACA's Medical Loss Ratio Provision? (June 2013) (online at
http://kff.org/health-reform/perspective/beyond-rebates-how-much-are-
consumers-saving-from-the-acas-medical-loss-ratio-provision/).
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1. Insurers Have Rebated Hundreds of Millions of Dollars to Consumers
and Small Businesses
To date under the ACA, consumers and businesses have received
nearly $1.6 billion in rebates from insurers whose MLRs exceeded the
ACA thresholds.\15\ This includes:
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\15\ United States Department of Health and Human Services, 80/20
Rule Delivers More Value to Consumers in 2012 (June 2013) (hereafter
``80/20 Rule Delivers More Value to Consumers'').
$591 million in total rebates paid to consumers in the
---------------------------------------------------------------------------
individual market;
$493 million in total rebates paid to consumers in the small
group market; and
$512 million in total rebates paid to consumers in the large
group market.\16\
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\16\ Id.
In 2012, 13.1 million Americans received an average rebate of $137
per family for a total of $1.1 billion in rebates;\17\ in 2013, 8.5
million Americans received an average rebate of $100 per family for a
total of $500 million in rebates.\18\ As discussed below, this decrease
between 2012 and 2013 in rebates paid to consumers means that more
insurers were meeting the threshold MLRs required by the ACA, and that
ultimately more premium dollars were being spent by insurers on health
care expenses.
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\17\ United States Department of Health and Human Services, The 80/
20 Rule: How Insurers Spend Your Health Insurance Premiums (Feb. 2013).
\18\ 80/20 Rule Delivers More Value to Consumers, supra n.15.
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2. Improved Insurer Efficiencies Have Resulted in Additional Savings
for Consumers and Small Businesses
Rebates represent only a portion of the savings consumers
experience from the MLR. By setting a minimum percentage of
expenditures for medical care and quality improvement, the MLR
requirements limit what an insurer may expend on overhead, which
includes administrative costs and profits. Thus, once the minimum MLR
is reached, an insurer has incentive to reduce administrative costs in
order to increase profits.\19\
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\19\ Administrative expenses consist of general and administrative
expenses, commissions and advertising expenses, profit and
contingencies, and various other expenses that do not directly fund
medical care. Centers for Medicare and Medicaid Services (CMS), Medical
Loss Ratio (MLR) Annual Reporting Form Filing Instructions for the 2013
MLR Reporting Year (Mar. 26, 2014).
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For example, the Commonwealth Fund, a non-partisan research
organization, has issued several reports analyzing 2010-2012 insurer
data regarding administrative expenditures. According to these
analyses, the reduction in insurer overhead--and ``ultimately, the cost
of insurance to consumers and the government''--was $1.4 billion
between 2011 and 2012 and $350 million between 2010 and 2011.\20\ These
reports cite implementation of the MLR rule as a substantial factor
driving insurer overhead reductions.\21\
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\20\ Michael J. McCue and Mark A. Hall, The Commonwealth Fund,
Realizing Health Reform's Potential--The Federal Medical Loss Ratio
Rule: Implications for Consumer in Year 2 (May 14, 2014); Michael J.
McCue and Mark A. Hall, The Commonwealth Fund, Insurers' Responses to
Regulation of Medical Loss Ratios, at 7 (Dec. 2012). The 2012 report
also cites other factors in addition to the MLR rule including
competitive and state regulatory factors, which may drive insurers'
pricing decisions and operational strategies. Id. at 3.
\21\ Michael J. McCue and Mark A. Hall, The Commonwealth Fund,
Realizing Health Reform's Potential--The Federal Medical Loss Ratio
Rule: Implications for Consumer in Year 2 (May 14, 2014); Michael J.
McCue and Mark A. Hall, The Commonwealth Fund, Insurers' Responses to
Regulation of Medical Loss Ratios, at 7 (Dec. 2012).
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In June 2013, HHS released an additional study of insurer data from
2011 and 2012 reporting that administrative costs as a percentage of
consumer health insurance premiums decreased slightly from 2011 to
2012.\22\ The chart below depicts this trend across the various
markets.
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\22\ 80/20 Rule Delivers More Value to Consumers, supra n.15.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Source: HHS
Experts at The Henry L. Kaiser Family Foundation, a non-partisan
health research organization, also have found that, beyond receiving
rebates, consumers are receiving better value for their premium dollars
as health insurers across all three market segments achieve compliance
with the new MLR requirements.\23\ And in a separate analysis, HHS
estimated what consumer premiums in 2012 would have been if MLRs of
health insurers had remained at 2011 levels, finding that Americans
saved $3.4 billion on their premiums in 2012 as insurance companies
improved efficiencies.\24\
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\23\ Cynthia Cox, Gary Claxton and Larry Levitt, The Henry J.
Kaiser Family Foundation, Beyond Rebates: How Much are Consumers Saving
from the ACA's Medical Loss Ratio Provision? (June 2013) (online at
http://kff.org/health-reform/perspective/beyond-rebates-how-much-are-
consumers-saving-from-the-acas-medical-loss-ratio-provision/).
\24\ 80/20 Rule Delivers More Value to Consumers, supra n.15.
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3. Minimum National MLR Standard Means Reduced State-by-State
Subsidization
Prior to the establishment of national minimum MLR levels, MLR
requirements varied from state to state. Under this patchwork of state
laws, health insurers could in effect subsidize their efforts to meet
the high MLRs mandated in some states by spending low percentages of
consumer premium dollars on medical care in other states that lacked
meaningful MLR requirements. For instance, in 2009, WellPoint's small
group health insurance product in New Hampshire had an MLR of 87.9
percent but a similar product in Virginia had an MLR of 66.6
percent.\25\ By setting a national floor regarding insurer expenditures
on medical care, the ACA's MLR requirement incentivizes insurers to
provide consumers a high value for their premium dollar--regardless of
the state in which a consumer may reside.
---------------------------------------------------------------------------
\25\ Senate Committee on Commerce, Science, and Transportation,
Majority Staff Report on Implementing Health Insurance Reform: New
Medical Loss Ratio Information for Policymakers and Consumers, at 6
(Apr. 15, 2010).
---------------------------------------------------------------------------
A recent analysis by Carl McDonald, a leading health insurance
industry analyst with Citi, demonstrates the substantial gains
consumers have experienced since establishment of the nationwide
MLR.\26\ Over the course of the last two years, publicly traded health
insurers have seen their MLRs rise across the board. The six largest
publicly traded health insurers--Aetna, CIGNA, Health Net, Humana,
UnitedHealth Group, and WellPoint--operate in state markets across the
country. In 2011, these publicly traded health insurance companies met
the MLR on an aggregated level in only 4 out of 18 market segments. In
2012, the insurers met the minimum MLR requirements in 10 out of 18
market segments.
---------------------------------------------------------------------------
\26\ Carl McDonald and Sahil Choudhry, Citi, Managed Care: Nothing
is More Creative Than a Brilliant Mind with a Purpose (Apr. 8, 2014).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Citi
4. MLR Requirements Have Promoted Transparency
For years before the passage of the ACA, consumers paying a monthly
medical insurance premium saw their premiums increase annually but had
no window into how their health insurance plans were spending premium
dollars. The MLR provisions of the ACA promote transparency in the
health insurance marketplace by requiring that insurance companies
publicly disclose how they spend consumers' premiums dollars. This
national reporting requirement means consumers can access data that was
previously unreported or available only to state insurance regulators.
Under the ACA, all health insurers are now required to report to
HHS aggregated state-level financial data including income from
premiums and expenditures on health care claims, quality improvement,
taxes, licensing, and regulatory fees.\27\ Health insurers report their
MLRs at the state level, across all plans, and in each market segment
in which they operate. HHS then makes this data publicly available on
its website.\28\ This data helps consumers gauge the value they are
receiving for their premium dollars. In addition, policy experts,
financial market participants, regulators, and other researchers now
have access to robust insurer data to assess health insurance market
activity.
---------------------------------------------------------------------------
\27\ 45 C.F.R. Sec. 158.120 (2011).
\28\ Centers for Medicare & Medicaid Services, The Center for
Consumer Information and Insurance Oversight--Medical Loss Ratio Data
and System Resources Home Page (online at http://www.cms.gov/CCIIO/
Resources/Data-Resources/mlr.html).
---------------------------------------------------------------------------
A case in point is comments of a financial analyst who recently
used the new MLR data to evaluate commercial risk issues, noting:
The data set in this report is quite versatile. . . . [T]he
data provides specific details on the states where plans could
have too much overlap and run into antitrust issues. And just
recently, we were able to analyze the plans that could benefit
the most from favorable weather based on where they have the
most risk enrollees.\29\
---------------------------------------------------------------------------
\29\ Carl McDonald and Sahil Choudhry, Citi, Managed Care: Nothing
is More Creative Than a Brilliant Mind with a Purpose, at 4 (Apr. 8,
2014).
---------------------------------------------------------------------------
II. A History of the ACA MLR
From the outset of Senator Rockefeller's tenure as Chairman of the
Senate Committee on Commerce, Science, and Transportation (``the
Committee''), Senator Rockefeller and the Committee have closely
scrutinized the health insurance industry's business practices and
their impact on consumers. Throughout the health reform debate, the
Committee held a series of hearings examining the many obstacles
consumers faced when they attempted to make informed purchasing
decisions in the health insurance market. The hearings demonstrated
that one of the greatest difficulties consumers faced was getting clear
and accurate information about health insurance products. The Committee
also examined several abusive health insurance practices that focused
on how insurers would often take advantage of policyholders while in
the pursuit of higher profits.\30\
---------------------------------------------------------------------------
\30\ As Chairman of the Senate Committee on Commerce, Science, and
Transportation, Senator Rockefeller has examined the consumer
perspective in the American health insurance market. See Senate
Committee on Commerce, Science, and Transportation, Hearings on Part I:
Deceptive Health Insurance Industry Practices--Are Consumers Getting
What They Paid For? (Mar. 26, 2009); Senate Committee on Commerce,
Science, and Transportation, Hearings on Part II: Deceptive Health
Insurance Industry Practices--Are Consumers Getting What They Paid For?
(Mar. 31, 2009); Senate Committee on Commerce, Science, and
Transportation, Hearings on Competition in the Health Care Marketplace
(July 16, 2009); Senate Committee on Commerce, Science, and
Transportation, Hearings on Are Mini Med Policies Really Health
Insurance? (Dec. 1, 2010); Senate Committee on Commerce, Science, and
Transportation, Staff Report on Underpayments to Consumers by the
Health Insurance Industry (June 24, 2009)
---------------------------------------------------------------------------
In 2009, during the development of health insurance reform
legislation, the Committee's investigations and oversight work
regarding the health insurance industry provided impetus for the MLR
requirements that ultimately were included in the ACA. Following
enactment of the ACA, Chairman Rockefeller continued vigilant oversight
of MLR implementation to make sure consumers and small businesses
receive appropriate value for their premiums, and have the information
they need to make informed decisions about health plans for themselves
and their families. Following is a chronicle of these efforts.
A. The Health Reform Debate and the MLR
1. June 2009: Commerce Committee Hearing
On June 24, 2009, the Commerce Committee held a hearing titled
``Consumer Choices and Transparency in the Health Insurance Industry''
to examine obstacles American consumers face when attempting to obtain
clear and accurate information about their health insurance coverage.
At that hearing, one of the witnesses, former CIGNA executive Wendell
Potter, argued that health insurers had strong incentives to minimize
the amount spent on actual medical care in order to promote greater
company profits.
Drawing on experiences from his over 20-year career as a senior
health insurance industry executive, Mr. Potter testified about the
pressure health insurance companies felt from Wall Street to keep
medical loss ratios low:
I have seen an insurer's stock price fall 20 percent or more in
a single day after executives disclosed that the company had to
spend a slightly higher percentage of premiums on medical
claims during the quarter than it did during a previous period.
The smoking gun was the company's first-quarter medical loss
ratio, which had increased from 77.9 percent to 79.4 percent a
year later.\31\
---------------------------------------------------------------------------
\31\ Senate Committee on Commerce, Science, and Transportation,
Testimony of Wendell Potter, Consumer Choices and Transparency in the
Health Insurance Industry, 111th Cong. (June 24, 2009) (S. Rept. 111-
344) at 8.
Mr. Potter also asserted that health insurers used techniques to
trim their MLRs including dumping and purging sick policyholders to
reduce the number of expensive policy holders needing expensive
care.\32\ Further, Mr. Potter highlighted a 2008 PricewaterhouseCoopers
study showing how successful the health insurance industry had become
in charging more for health insurance while paying a decreasing share
on actual medical care:
---------------------------------------------------------------------------
\32\ Id.
The accounting firm found that the collective medical-loss
ratios of the seven largest for-profit insurers fell from an
average of 85.3 percent in 1998 to 81.6 percent in 2008. That
translates into a difference of several billion dollars in
favor of insurance company shareholders and executives at the
expense of health care providers and their patients.\33\
---------------------------------------------------------------------------
\33\ Id. at 9.
---------------------------------------------------------------------------
2. August 2009: Chairman Rockefeller's Letters to Insurance Company
Executives
Following the June 2009 Committee hearing, Chairman Rockefeller
wrote to 15 of the largest health insurance companies to further
examine MLRs in the individual, small, and large group markets, and how
the health insurance industry collects, uses, and publicizes MLR
information. These companies collectively controlled more than half of
the Nation's fully insured marketplace.\34\ The letters sought
information on how the companies spent their policyholders' premium
dollars, noting that while the MLR is a key tool for understanding the
health insurance market, ``insurance companies do not appear to readily
disclose this information to consumers and businesses.'' \35\
---------------------------------------------------------------------------
\34\ A fully insured plan is one where the employer contracts with
another organization to assume financial responsibility for the
enrollees' medical claims and for all incurred administrative costs.
Bureau of Labor Statistics, Definitions of Health Insurance Terms
(online at http://www.bls.gov/ncs/ebs/sp/healthterms.pdf).
\35\ Letter from Chairman John D. Rockefeller to Stephen J.
Hemsley, President and Chief Executive Officer, UnitedHealth Group, at
1 (Aug. 21, 2009).
---------------------------------------------------------------------------
3. September-October 2009: Senate Committee on Finance Markup of Health
Reform Legislation
As the Committee was seeking MLR information from health insurers,
from late September through early October 2009, the Senate Finance
Committee, on which Senator Rockefeller serves as the Chair of the
Subcommittee on Health, began consideration of health reform law
legislation.\36\ At the time of this legislative markup, Chairman
Rockefeller had received incomplete responses to his August letters to
health insurers requesting MLR information.
---------------------------------------------------------------------------
\36\ Shailagh Murray and Lori Montgomery, Lines Drawn as Senate
Panel Begins Debating Health Bill, Washington Post (Sept. 23, 2009)
(online at http://www.washingtonpost.com/wp-dyn/content/article/2009/
09/22/AR2009092201548.html). This measure, the ``America's Healthy
Future Act,'' ultimately introduced as S. 1796, was one of two major
bills being considered by the Senate as part of health reform. The
second, the ``Affordable Health Choices Act,'' S.1679, was reported out
of the Committee on Health, Education, Labor, and Pensions on September
17, 2009.
---------------------------------------------------------------------------
Noting recalcitrance among insurers in providing transparency on
consumer premium expenditures, Chairman Rockefeller proposed an
amendment establishing an 85 percent MLR for insurers that participate
in the health markets--or ``exchanges''--established under the Act.\37\
This amendment was based on freestanding legislation introduced in the
Senate Committee on Health, Education, Labor, and Pensions the same
week by Senator Franken, and cosponsored by Sens. Rockefeller,
Whitehouse, Sanders, Begich, Stabenow, and Leahy.\38\ During the Senate
Finance Committee markup, Senator Rockefeller explained the rationale
for establishing minimum national MLR requirements:
---------------------------------------------------------------------------
\37\ Senate Committee on Finance, Results of Executive Session,
America's Health Future Act of 2009 (Sept. 22, 2009) (online at http://
www.finance.senate.gov/legislation/details/?id=61f4fb98-a3d0-d85c-d33f-
f2c598e1d138).
\38\ S. 1730, 111th Cong. (2009).
That would seem to me to be a reasonable and fair requirement
for a health insurance company whose business in public life is
to provide health insurance with premiums that go back and
forth. But regardless of what those premiums might be, the
majority of the premiums, the majority of what they make is
spent on medical care for the people that they are in business
to insure.\39\
---------------------------------------------------------------------------
\39\ Senate Committee on Finance, Continuation of the Open
Executive Sessions to Consider an Original Bill Providing for Health
Care Reform, at 195, 111th Cong. (Oct. 1, 2009).
Ultimately, the amendment was pulled from consideration since the
Congressional Budget Office (CBO) had not yet provided an evaluation of
its cost.\40\
---------------------------------------------------------------------------
\40\ Id. at 219.Ce ine at (nk doesn'tee on Health, Education,
Labor, and Pensions ffordable Care Acte comprehensive plans..''
---------------------------------------------------------------------------
4. November 2009: Letter from Chairman Rockefeller to CIGNA
While many health insurers that were either not-for-profit or that
operated primarily in just one state provided Chairman Rockefeller
complete responses to his August 2009 request for MLR data, many for-
profit health insurers did not. Seeking further understanding of
expenditures within this market, the Commerce Committee obtained MLR
filing data for 2008 and 2009 submitted by the 15 largest for-profit
health insurers to the National Association of Insurance Commissioners
(NAIC)\41\ pursuant to various state requirements.\42\ Committee
majority staff examined this data in conjunction with data publicly
filed with the Securities and Exchange Commission (SEC) over the same
time period.
---------------------------------------------------------------------------
\41\ NAIC is the U.S. standard-setting and regulatory support
organization created and governed by the chief insurance regulators
from the 50 states, the District of Columbia and five U.S. territories.
Through the NAIC, state insurance regulators establish standards and
best practices, conduct peer review, and coordinate their regulatory
oversight. National Association of Insurance Commissioners, About the
NAIC (online at http://www.naic.org/index_about.htm).
\42\ State Insurance Commissioners require health insurers to file
detailed financial disclosures with the NAIC for solvency purposes. As
part of these filings, information pertaining to a plan's pre ACA MLR
was available.
---------------------------------------------------------------------------
This review found a discrepancy between the MLR information the
insurance industry provided to consumers and policy makers versus the
MLR information provided to investors during the health reform debate.
Specifically, in December 2008, America's Health Insurance Plans (AHIP)
issued a report showing an industry-wide MLR of 87 percent in 2008.\43\
Based on the findings of this report, AHIP created the below figure
showing that 87 cents out of every 100 is spent on medical care leaving
13 cents for non-medical expenses and profit.
---------------------------------------------------------------------------
\43\ PricewaterhouseCoopers, The Factors Fueling Rising Health Care
Costs 2008, Prepared for AHIP, at 2 (Dec. 2008).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
However, SEC filings of the six largest publicly-traded health
insurers (including CIGNA) showed that none of the health insurers
achieved the 87 percent MLR that the AHIP report cited. In these SEC
filings, which are public documents but are targeted to investors and
potential investors who are interested in a company's profitability,
the companies' reported 2008 MLRs ranged from 81.5 percent to a high of
84.8 percent.\44\
---------------------------------------------------------------------------
\44\ Letter from Chairman John D. Rockefeller to H. Edward Hanway,
Chairman and Chief Executive Officer, CIGNA, at 7 (Nov. 2, 2009).
---------------------------------------------------------------------------
When multiplied across the $70 billion health insurers collected in
premiums in 2008 alone, these discrepancies in MLR percentages amounted
to billions of dollars.\45\ Chairman Rockefeller discussed concerns
raised by this analysis in a November 2, 2009, letter to the chief
executive officer of CIGNA,\46\ and CIGNA subsequently refiled its
policy exhibits with the NAIC to correct the inaccurate information
identified by Chairman Rockefeller.
---------------------------------------------------------------------------
\45\ Id.
\46\ Id. at 15.
---------------------------------------------------------------------------
5. December 2009: Senate Passage of Health Reform Legislation with MLR
Provisions
In November 2009, the full Senate took up debate of health reform
legislation. Senator Rockefeller successfully pressed for inclusion in
the leadership amendment package MLR language similar to what he had
proposed in the Senate Finance Committee health reform markup and to
what Senator Franken had introduced in his stand-alone bill. The
amendment established a minimum MLR of 80 percent for the individual
and small group health insurance segments, and 85 percent for the large
group segment.
The decision to establish minimum medical loss ratios at these
levels was guided by the CBO's determination that the majority of
insurers were already providing benefits to their customers at or above
these levels.\47\
---------------------------------------------------------------------------
\47\ Congressional Budget Office, Budgetary Treatment of Proposals
to Regulate Medical Loss Ratios (Dec. 13, 2009).
---------------------------------------------------------------------------
During Senate floor consideration of the leadership amendment
package, Senator Bill Nelson from Florida spoke to the legislative
intent of the proposed MLR language. Sharing his experiences as a past
state insurance commissioner of Florida, Senator Nelson stated:
For 6 years, I got to see what insurance companies will do. I
can tell you. Instead of 85 percent and 80 percent that we are
going to require in this bill of every insurance premium dollar
they pay out in medical care. I can tell you that some of the
insurance companies I regulated back in the State of Florida
were down in the sixties. A lot of that was going into big-time
administrative offices, all kinds of jets, all kinds of padded
expense accounts. . . .
We need to ensure that the policyholder's premiums and the
Federal subsidies that are going into the purchase of private
health insurance on the exchange are used for actual medical
care and not for wasteful administrative spending and marketing
and profits. If we don't do this kind of thing, regulating
insurance companies, they are going to take advantage. They are
going to take advantage of making more money at the expense of
patient care.\48\
---------------------------------------------------------------------------
\48\ Statement of Senator Bill Nelson, Congressional Record,
S13626-13628 (Dec. 20, 2009).
The Senate passed the MLR amendment on December 22, 2009,\49\ and
passed the bill containing this amendment on December 24, 2009.\50\ The
MLR provisions remained in the final version enacted by Congress after
the Senate and House resolved differences between their versions of the
bill.\51\
---------------------------------------------------------------------------
\49\ The leadership amendment, S. Amdt. 3276, was introduced on
December 19, 2009. See Congressional Record, S13491-92. The amendment
passed 60-39 on December 22, 2009. See Congressional Record, S13716.
\50\ U.S. Senate, Roll Call Vote on H.R. 3590 (Dec. 24, 2009) (60
yeas, 39 nays).
\51\ The House of Representatives agreed to Senate amendments to
the health reform bill on March 21, 2010 by a vote of 219-212. U.S.
House of Representatives, Roll Call Vote on H.R. 4872 (Mar. 21, 2010)
(219 yeas, 212 nays).
---------------------------------------------------------------------------
B. Implementation of the Affordable Care Act MLR Provisions
1. Elements of the MLR Formula
Prior to passage of the ACA, the MLR was a calculation that served
mainly to provide the shareholders of for-profit health insurance
companies with some indication of how much profit the insurer was
making. Under the pre-ACA--or ``traditional''--MLR definition, the
numerator consisted of the company's expenditures for health care
claims and the denominator consisted of the company's total premium
intake. The ACA MLR definition differs from the traditional MLR
calculation in several ways: (1) it allows a category of expenses
considered to involve ``quality improvement'' to be counted in the
numerator; and (2) it allows for a reduction in the denominator
reflecting taxes and fees.\52\ The figure below demonstrates the
difference between a ``traditional'' MLR and the ACA's MLR.
---------------------------------------------------------------------------
\52\ Under the ACA, Federal and state taxes are subtracted from the
total amount of premium revenue in the denominator of the MLR ratio.
The contours of what constitutes ``federal and state taxes,'' however,
were left to the rulemaking process. In the NAIC process, Federal taxes
were defined as ``all Federal taxes and assessments allocated to health
insurance coverage reported under section 2718 of the PHS Act,
excluding Federal income taxes on investment income and capital
gains.'' HHS adopted this definition in the interim and final rules,
noting that investment income and capital gains taxes ``are not taxes
based on premium revenues, and thus should not be used to adjust
premium revenues.'' Department of Health and Human Services, Health
Insurance Issuers Implementing Medical Loss Ratio (MLR) Requirements
Under the Patient Protection and Affordable Care Act, 75 Fed. Reg.
74878 (Dec. 1, 2010) (interim final rule).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
---------------------------------------------------------------------------
Source: Mark Farrah Associates
The ACA provided that NAIC would develop the new definitions and
methodologies that health insurance companies and regulators would use
for purposes of determining compliance with the ACA's minimum MLR
requirements.\53\ The Secretary of the Department of Health and Human
Services (HHS) was then tasked with certifying, by December 31, 2010,
the MLR definitions and methodologies developed by the NAIC.\54\
---------------------------------------------------------------------------
\53\ PPACA MLR provision, supra n. 7, at 2718(c).
\54\ Id.
---------------------------------------------------------------------------
2. NAIC Implementation Process
The NAIC set up two working groups of state insurance commissioners
to develop the definitions and methodologies required under the ACA's
MLR provisions. One group focused on devising a form for insurers to
use to report the components of the MLR; the other was responsible for
developing the definitions to be used in the MLR reports.\55\ Key terms
that required definition in this process included ``quality improvement
activities,'' the category of costs the ACA's MLR formula allows to be
included as part of an insurer's medical costs.\56\ As part of its
implementation process, the NAIC allowed for participation by
interested stakeholders, including insurance company representatives
and consumer advocates, providing opportunities to join conference
calls and offer written comments.
---------------------------------------------------------------------------
\55\ Timothy Jost, Implementing Health Reform: Medical Loss Ratios,
Health Affairs Blog (Nov. 23, 2010) (online at http://
healthaffairs.org/blog/2010/11/23/implementing-health-reform-medical-
loss-ratios/).
\56\ Department of Health and Human Services, Health Insurance
Issuers Implementing Medical Loss Ratio (MLR) Requirements Under the
Patient Protection and Affordable Care Act, 75 Fed. Reg. 74875 (Dec. 1,
2010) (interim final rule).
---------------------------------------------------------------------------
As the NAIC began the process of determining MLR definitions,
consumer advocates and others became concerned that health insurers
would work to dilute the MLR in two ways: (1) health insurers might
attempt to reclassify certain administrative expenses as medical
expenses or use an overly broad definition of ``quality improvement
expense'' that could mask expenses that were actually administrative in
nature; and (2) that national aggregation--as opposed to state-level
aggregation--of MLR data would allow companies to avoid having to pay
rebates to health insurance consumers in states with low MLRs as long
as they maintain their MLR above the national level.
Chairman Rockefeller monitored the NAIC implementation process and
when appropriate, engaged with the NAIC to push back against efforts by
the insurance industry that would have diluted intended consumer
benefits of the MLR.
a. April 15, 2010 Committee Majority Staff Report
On April 15, 2010, Chairman Rockefeller released a Commerce
Committee majority staff report titled ``Implementing Health Insurance
Reform: New Medical Loss Ratio Information for Policymakers and
Consumers'' (``April 2010 report'') to provide background on pre-ACA
insurer MLRs. The report analyzed the insurance industry's regulatory
filings with the NAIC in 2008 and 2009 as well as insurer responses to
the Chairman's August 2009 letter inquiries, and examined the
importance of segmenting the MLRs by individual, small and large group
segments. The report also highlighted the importance of establishing
clear limits on the definition of what constitutes a ``quality
improvement'' cost to prevent insurers from manipulating the new MLR
formula to the detriment of consumers.\57\
---------------------------------------------------------------------------
\57\ Senate Committee on Commerce, Science, and Transportation,
Majority Staff Report on Implementing Health Insurance Reform: New
Medical Loss Ratio Information for Policymakers and Consumers, at 5
(Apr. 15, 2010).
---------------------------------------------------------------------------
The April 2010 report's analysis of 2008 and 2009 regulatory
filings with the NAIC showed that although many health insurers across
the country were already meeting the minimum MLRs set forth in the ACA,
the largest for-profit health insurers spent a much smaller portion of
premium dollars on medical care in the individual market as compared to
the larger group markets.\58\ According to this analysis, the largest
for-profit insurers used about 15 cents out of every large group
premium dollar for non-medical expenses while using more than 26 cents
out of every premium dollar for non-medical expenses in the individual
market.\59\ Leading insurer WellPoint provided a case in point. While
WellPoint told its investors in 2009 that its overall MLR was 82.6
percent, its individual and small group market insurance products had
MLRs of 74.9 percent and 81.2 percent.\60\ The table below demonstrates
the discrepancies between individual and group plan MLRs discussed in
the report.
---------------------------------------------------------------------------
\58\ Id. at 3.
\59\ Id. at 3-4.
\60\ Id. at 3.
----------------------------------------------------------------------------------------------------------------
Individual Small Group Large Group
-----------------------------------------------------------------
2009 2008 2009 2008 2009 2008
----------------------------------------------------------------------------------------------------------------
Aetna 75.7% 73.9% 84.2% 82.0% 87.2% 82.0%
----------------------------------------------------------------------------------------------------------------
CIGNA 88.1% 86.9% 92.1% -- 85.2% 37.2%
----------------------------------------------------------------------------------------------------------------
Coventry 71.9% 65.8% 78.2% 79.1% 86.0% 82.7%
----------------------------------------------------------------------------------------------------------------
Humana 68.1% 71.9% 80.0% 77.2% 88.2% 82.4%
----------------------------------------------------------------------------------------------------------------
UnitedHealth 70.5% 70.3% 81.1% 78.7% 83.3% 83.5%
----------------------------------------------------------------------------------------------------------------
WellPoint 74.9% 73.1% 81.2% 79.0% 84.9% 85.2%
----------------------------------------------------------------------------------------------------------------
TOTAL 73.6% 72.5% 81.2% 79.7% 85.1% 83.9%
----------------------------------------------------------------------------------------------------------------
The April 2010 report also examined data of six large, state-based
subsidiaries of WellPoint to assess the expected impact of new MLR
requirements at the state level. As shown in the following chart, this
data showed substantial variation between states:
----------------------------------------------------------------------------------------------------------------
Individual Small Group Large Group
Segment Segment Segment
----------------------------------------------------------------------------------------------------------------
Anthem Health Plans of NH 62.9% 87.9% 88.4%
----------------------------------------------------------------------------------------------------------------
Anthem Health Plans of VA 72.1% 66.6% 79.4%
----------------------------------------------------------------------------------------------------------------
Rocky Mountain Hospital & Medical 74.1% 79.9% 83.1%
----------------------------------------------------------------------------------------------------------------
Blue Cross Blue Shield of GA 75.5% 78.0% 86.0%
----------------------------------------------------------------------------------------------------------------
Anthem Health Plans of KY 79.4% 80.9% 82.0%
----------------------------------------------------------------------------------------------------------------
Anthem Health Plans of ME 95.2% 86.9% 89.5%
----------------------------------------------------------------------------------------------------------------
The April 2010 report further raised concerns about how insurers
would approach accounting under the new MLR requirements. A separate
report issued in the same time frame by health care industry analyst
Carl McDonald of Oppenheimer & Co. had highlighted the financial
incentive for health insurance companies to shift expenditures from the
category of administrative costs to the category of medical costs,\61\
suggesting that companies would seek to ``MLR shift'' their costs from
administrative to medical by 5 percent, or 500 basis points.\62\
Pointing to this analysis, the Committee majority staff's April 2010
report asserted that a stricter definition of ``quality improvement
expenses'' would limit the ability of health insurers to ``MLR shift''
and strongly recommended that regulators ``remain vigilant and focused
on ensuring that consumers get the benefit of the new federally
mandated medical loss ratios.'' \63\
---------------------------------------------------------------------------
\61\ See Id. at 6 citing to Carl McDonald and James Naklicki,
Oppenheimer & Co. Inc. Equity Research Industry Update, The Average
Person Thinks He Isn't--Minimum Medical Loss Ratio Analysis (Apr. 8,
2010).
\62\ Id.
\63\ Id. at 7.
---------------------------------------------------------------------------
b. May 7, 2010, Letters from Chairman Rockefeller to Secretary Sebelius
and NAIC Commissioner Cline
As the NAIC continued its deliberations, Chairman Rockefeller wrote
to HHS Secretary Kathleen Sebelius and NAIC Commissioner Jane Cline,
then the President of the NAIC, to express his deep concern that the
health insurance industry was ``mounting an all-out effort'' to weaken
the MLR. In this letter he reminded policymakers that the intent of the
MLR was to make sure that ``most of consumers' health insurance
premiums dollars should be going to pay for patient care, not for
insurers' administrative costs and profits.'' \64\
---------------------------------------------------------------------------
\64\ Letter from Chairman John D. Rockefeller to Kathleen Sebelius,
Secretary, Department of Health and Human Services (May 7, 2010);
Letter from Chairman John D. Rockefeller to Commissioner Jane Cline,
President, National Association of Insurance Commissioners (May 7,
2010).
---------------------------------------------------------------------------
Specifically, the Chairman highlighted the importance of requiring
MLR reports on a state-by-state and market-by-market basis, as opposed
to allowing insurers to report aggregate nationwide MLRs, to make sure
consumers in a given state have appropriate information to evaluate
their insurance options.\65\
---------------------------------------------------------------------------
\65\ Id. at 3-4. The letters cited data discussed in the April 2010
report showing variation between market segments and within market
segments.
---------------------------------------------------------------------------
These letters also reiterated the concern that insurers have strong
financial incentives to ``MLR shift'' administrative expenses to the
medical side, and argued that cost containment data reported to NAIC in
2009 should be viewed as a reference point in assessing insurer
predictions about their quality improvement expenditures. Committee
staff analysis of this cost containment data showed that insurers
invested an average of just 1.15 percent of their premium dollars on
cost containment activities. While noting that cost containment
expenses did not precisely overlap with activities that improve health
quality, the Chairman argued that the low cost containment expenditures
provide grounds for reviewing ``with skepticism'' proposals that would
``allow insurers to claim that they will spend significantly higher
portions of premium dollars on quality improvement in the year 2011
than they are currently spending on cost containment.'' \66\
---------------------------------------------------------------------------
\66\ Id. at 7.
---------------------------------------------------------------------------
c. July 20, 2010, Letter from Chairman Rockefeller to Commissioner
Cline
On July 20, 2010, Chairman Rockefeller wrote NAIC Commissioner Jane
Cline to express concern about mounting evidence of vast imbalances in
resources of health insurers versus consumer advocates as they made
their case in the NAIC process.\67\ In this letter, he also addressed
key issues yet to be decided by the NAIC, including the final
definition of ``quality improvement expenses.'' \68\ At this time,
major insurers were arguing against the use of evidence-based standards
in defining this term.
---------------------------------------------------------------------------
\67\ Letter from Chairman John D. Rockefeller to Commissioner Jane
Cline, President, National Association of Insurance Commissioners, at 2
(July 20, 2010).
\68\ Id. at 3-6.
---------------------------------------------------------------------------
In a June 2010 letter, Blue Cross Blue Shield Association (BCBSA)
complained to the NAIC that requiring evidence-based standards in the
definitions of ``quality improvement expenses'' would present
``unnecessary barriers and unreasonable high standards'' for
insurers.\69\ UnitedHealthcare Group made a similar point in a letter
to the NAIC in a letter providing edits to a draft set of definitions,
displayed below, that the NAIC had circulated for comment.\70\
---------------------------------------------------------------------------
\69\ Id. at 5.
\70\ Id.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In his letter to Commissioner Cline, Chairman Rockefeller argued
that an evidence-based approach best reflected the law's intent to
``improve the safety, timeliness and effectiveness of the care patients
receive,'' \71\ and that without such an approach, health insurance
companies could claim any expense they labeled as improving patient
quality as a ``quality improvement expense.'' The Chairman cited the
following examples of expenditures that insurers were claiming
constituted ``quality improvements'' but that appeared to have
questionable impact on improving the quality of care a policyholder
could expect to experience:\72\
---------------------------------------------------------------------------
\71\ Id. at 3.
\72\ Id. at 4.
The money health insurance companies spend processing and
---------------------------------------------------------------------------
paying claims;
The money health insurance companies spend creating and
maintaining their provider networks;
The money health insurers spend updating their information
technology systems to code medical conditions and process
claims payments;
The money health insurance companies spend to protect
against fraud and other threats to the integrity of their
payment systems; and
The money health insurance companies use to conduct
``utilization review'' of paid claims to detect payments the
companies deem inappropriate and retroactively deny them.\73\
---------------------------------------------------------------------------
\73\ Id.
The NAIC working group tasked with devising the definition of
``quality improving expenses'' ultimately insisted that ``quality
improvement expenses'' should be evidenced based, should ``advance the
delivery of patient-centered care,'' and should be ``capable of being
objectively measured.'' \74\
---------------------------------------------------------------------------
\74\ The NAIC's definition of ``quality improving expenses'' was
ultimately adopted by HHS. See Centers for Medicare and Medicaid
Services (CMS), Medical Loss Ratio (MLR) Annual Reporting Form Filing
Instructions for the 2013 MLR Reporting Year, at 14-15, 31 (Mar. 26,
2014).
---------------------------------------------------------------------------
d. October 14, 2010, Letter from Chairman Rockefeller to the NAIC
In early October 2010, as the NAIC neared the end of its
deliberations on the MLR definitions and methodologies, the health
insurance industry sought to re-open the debate regarding state versus
national level aggregation for health insurance company MLRs. Chairman
Rockefeller addressed this argument in an October 14, 2010 letter to
Commissioner Cline, urging the NAIC to maintain its ``pro-consumer
perspective and to reject the health insurance industry's last-minute
attempt to erode the good work of the [NAIC].'' \75\ This lobbying
effort by the health insurance industry ultimately failed and the NAIC
moved to have its final recommendations sent to the Secretary of HHS.
---------------------------------------------------------------------------
\75\ Letter from Chairman John D. Rockefeller to Commissioner Jane
Cline, President, National Association of Insurance Commissioners, at 2
(Oct. 14, 2010).
---------------------------------------------------------------------------
These NAIC recommendations largely reflected Chairman Rockefeller's
input on key issues of requiring a thorough and thoughtful definition
of ``quality improvement expenses,'' and the requirement that health
insurance plans report their MLR performance at the state level.
3. HHS Rulemaking Process
On October 27, 2010, the NAIC provided its final recommendations to
the Secretary of HHS, as directed by Public Health Service Act Section
2718(c).\76\ HHS began its implementation process by publishing an
interim final rule (IFR) in the Federal Register on December 1, 2010,
with request for public comment. The IFR adopted the NAIC
recommendations in full,\77\ and ultimately, HHS adopted a final rule
on December 7, 2011.\78\
---------------------------------------------------------------------------
\76\ Letter from the National Association of Insurance
Commissioners to Kathleen Sebelius, Secretary, Department of Health and
Human Services (Oct. 27, 2010).
\77\ Department of Health and Human Services, Medical Loss Ratio
Requirement Under the Patient Protection and Affordable Care Act, 76
Fed. Reg. 76590 (Dec. 7, 2011) (final rule).
\78\ Id. at 76574.
---------------------------------------------------------------------------
While many stakeholder disagreements were resolved in the NAIC
process, stakeholders continued to vigorously debate a number of key
issues during the HHS rulemaking process, including the issue of how to
properly classify ``quality improvement expenses.'' The rulemaking also
explored how expenses associated with health insurance agent and broker
commission fees were to be accounted.
a. Activities That Improve Health Care Quality
Insurers and other interest groups argued that a broad definition
of ``quality improvement expenses'' would allow for future innovations.
Consumer advocates and provider groups, on the other hand, wanted HHS
to more concretely define such expenses to prevent health insurers from
essentially nullifying the purpose of the minimum MLR by allowing
administrative expenses to be deemed ``quality improvements.'' \79\
---------------------------------------------------------------------------
\79\ Department of Health and Human Services, Medical Loss Ratio
Requirement Under the Patient Protection and Affordable Care Act, 75
Fed. Reg. 74876 (Dec. 1, 2010) (interim final rule).
---------------------------------------------------------------------------
The final rule ultimately adopted the approach taken by the NAIC,
which provides that a quality improvement activity is one designed to
improve health quality and increase the likelihood of desired health
outcomes in ways that can be objectively measured, is directed toward
individual enrollees or incurred for the benefit of specified segments
of enrollees, and is grounded in evidence-based medicine or some other
widely accepted criteria.\80\ The rule also specifies insurer
activities that do not qualify as quality improvement expenses. These
include activities primarily designed to control costs, fraud
prevention activities, customer service hotlines addressing non-
clinical member questions, and maintenance of a claims adjudication
system, among others.\81\
---------------------------------------------------------------------------
\80\ Id. at 74875.
\81\ Id. at 74875-76.
---------------------------------------------------------------------------
b. Agent and Broker Fees
The IFR included a section of expenses it called ``other non-claims
costs'' to be calculated as non-medical administrative costs. HHS
defined these costs as ``expenditures that are not used to adjust
premiums, incurred claims, or activities that improve quality care.''
\82\ The NAIC included agent and broker fees in this section, and HHS
adopted that approach in the IFR. However, because the NAIC had raised
concern over the potential impact on the industry from excluding agent
and broker fees from the calculation of medical costs, HHS sought
comment on this issue.
---------------------------------------------------------------------------
\82\ Id. at 74877.
---------------------------------------------------------------------------
In elements of the fully insured health insurance market, insurance
agents and brokers serve as the marketing and sales conduit through
which an individual or small business would purchase a health insurance
product. Agents and brokers who sell health insurance typically had
been paid on a commission model, meaning as compensation for their
services, they received a percentage of the health insurance
policyholder's premiums dollars. Insurance agents and brokers believed
that keeping their commissions in the MLR calculation of ``other non-
claims costs'' would lead to reduced commissions, as health insurance
plans sought to reduce administrative expenses in order to meet the
ACA's MLR requirements.\83\
---------------------------------------------------------------------------
\83\ Letter from Ken A. Crerar, President, Council of Insurance
Agents & Brokers, President, to the Office of Consumer Information and
Insurance Oversight (Jan. 31, 2011).
---------------------------------------------------------------------------
During the comment period, stakeholders addressed the issue of how
to classify agent and broker fees. The Council of Insurance Agents &
Brokers wrote that agents and brokers provide critical services in the
group health insurance market, such as administering benefit programs,
assisting with Federal and state legal compliance, and advising on
mitigating rising costs.\84\ The National Association of Health
Underwriters said that the fees should not be considered administrative
costs, as they are passed-through fees rather than insurer revenue.\85\
The U.S. Chamber of Commerce argued that ``agents and brokers serve a
critical role in the health care marketplace by aiding consumers and
employers in determining the health plan that best suits their needs at
a premium they can afford.'' \86\
---------------------------------------------------------------------------
\84\ Id. at 2-3.
\85\ Letter from Janet Trautwein, Executive Vice President and
Chief Executive Officer, National Association of Health Underwriters,
to Kathleen Sebelius, Secretary, Department of Health and Human
Services, at 2 (Jan. 28, 2011).
\86\ Letter from Randel K. Johnson, Senior Vice President of Labor,
Immigration, & Employee Benefits, and Katie Mahoney, Director of Health
Care Regulations, U.S. Chamber of Commerce, to the Office of Consumer
Information and Insurance Oversight, at 7 (Jan. 31, 2011).
---------------------------------------------------------------------------
Other stakeholders expressed support for maintaining agent and
broker fees as non-claims costs. AARP called for caution with respect
to changes in the treatment of such fees as they relate to the MLR. It
urged that changes should ``be based on objective evidence with the
burden of proof on the issuers to justify such fees as anything other
than a non-claims cost.'' \87\ The American Medical Association also
supported treating broker fees and commissions as non-claims costs,
arguing that these are ``quintessential administrative costs'' that
``do not constitute the provision of medical services or the provision
of services to improve the quality of those medical services.'' \88\
---------------------------------------------------------------------------
\87\ Letter from David Certner, Legislative Counsel and Legislative
Policy Director, AARP, to the Center for Consumer Information and
Insurance Oversight, at 3 (Jan. 31, 2011).
\88\ Letter from Dr. Michael D. Maves, Executive Vice President and
Chief Executive Officer, American Medical Association, to Kathleen
Sebelius, Secretary, Department of Health and Human Services, at 2
(Jan. 31, 2011).
---------------------------------------------------------------------------
Finally, consumer groups expressed concern that ``some insurers
have already stated that they intend to collect commissions from
enrollees on behalf of brokers and agents but to not count the amounts
collected as premium revenue or administrative expenses.'' \89\ These
groups therefore urged HHS to support the IFR approach to agent and
broker costs and to vigilantly enforce the IFR provisions.
---------------------------------------------------------------------------
\89\ Letter from Health Care for America Now to the Office of
Consumer Information and Insurance Oversight, at 3.
---------------------------------------------------------------------------
The final rule made no changes to the treatment of agent and broker
fees. As such, they were defined as costs to be included in the non-
claims cost portion of the MLR.
4. 2011: Additional NAIC Review Regarding Excluding Agent and Broker
Commissions
The 2010 mid-term elections brought substantial changes to the
composition of Congress and state governments, bringing in a number of
new members of Congress and state governors who opposed the ACA. The
composition of the NAIC also saw substantial change, including the
election of four new commissioners.\90\ In addition, at this time
Florida Insurance Commissioner Kevin McCarty was designated NAIC
President-elect, for a term beginning in 2012.\91\ Throughout the
course of 2011, the NAIC saw renewed efforts by the health insurance
industry and its allies at the state and Federal level to roll back key
provisions of the ACA including the MLR.
---------------------------------------------------------------------------
\90\ Chad Hemenway, Hello. My Name Is. . ., National Underwriter
Property & Casualty (Dec. 20, 2010) (online at http://
www.propertycasualty360.com/2010/12/20/9-hello-my-name-is).
\91\ Sean P. Carr, NAIC Picks New Leaders in Wake of Electoral
Defeat, A.M. Best Newswire (Dec. 15, 2010) (online at http://
insurancenewsnet.com/oarticle/2010/12/15/naic-picks-new-leaders-in-
wake-of-electoral-defeat-a-240090.html#.U3UZvcfBre8).
---------------------------------------------------------------------------
One of the issues that received attention during this period was
the earlier NAIC and HHS decision to exclude agent and broker fees from
the determination of medical expenses under the MLR formula. Throughout
2011, Chairman Rockefeller monitored the NAIC's reconsideration of
whether agent and broker commissions should be exempted from the MLR
calculation, and engaged where appropriate with the NAIC on this issue.
a. March 15, 2011, Letter from Chairman Rockefeller to Commissioner
Susan E. Voss
As the debate regarding the treatment of health insurance agent and
broker commissions gathered momentum, the NAIC's Professional Health
Insurance Advisors Task Force took up the issue.\92\ This task force
was charged with monitoring the impact of the ACA on health insurance
agents and brokers, as well as the health insurance consumers and the
insurance market they serve.\93\ Commissioner McCarty led the task
force and on March 3, 2011, in advance of NAIC's planned spring meeting
in Austin, Texas, he released draft Federal legislation for public
comment. The McCarty Proposal would have excluded agent and broker
commissions from the MLR calculation.\94\
---------------------------------------------------------------------------
\92\ National Association of Insurance Commissioners, Professional
Health Insurance Advisors (D) Task Force, (accessed May 6, 2014)
(online at http://www.naic.org/committees_
d_health_advisors_tf.htm).
\93\ Id.
\94\ H.R. 1206, 112th Cong. (2012).
---------------------------------------------------------------------------
Chairman Rockefeller on March 15, 2011, wrote to Commissioner Susan
E. Voss, then the President of the NAIC, regarding these renewed
attempts to dilute the MLR.\95\ This letter highlighted how the NAIC
had established a collaborative environment throughout the 2010 MLR
implementation process,\96\ and noted that the McCarty proposal was
``the same proposal that NAHU [the National Association of Health
Underwriters] and other agent and broker groups unsuccessfully offered
during the NAIC's 2010 deliberations.'' \97\ The letter urged NAIC
members to carefully consider how the McCarty proposal could
potentially undermine the expected consumer benefits inherent in the
ACA's MLR provision.\98\
---------------------------------------------------------------------------
\95\ Letter from Chairman John D. Rockefeller to Susan E. Voss,
President, National Association of Insurance Commissioners (Mar. 15,
2011).
\96\ Id. at 2.
\97\ Id.
\98\ Id. at 3-10.
---------------------------------------------------------------------------
Specifically, the Chairman's letter pointed out that the ACA's MLR
provision was developed and drafted after extensive analysis of the
medical loss ratio data submitted by health insurance companies to the
NAIC as part of their regular regulatory regime, and both Congress and
the Congressional Budget Office relied on data that included in
``premiums earned'' any and all payments a health insurance company
made to an agent or broker related to the sale of a health insurance
policy.\99\ Chairman Rockefeller argued that excluding agent and broker
commissions from the MLR calculation would not only be inconsistent
with the health insurance industry's own accounting practices and
standards, but would also deprive millions of consumers and business
from the rebates and lower premiums they could expect from the MLR
provision.\100\
---------------------------------------------------------------------------
\99\ Id. at 3. Included within the instructions for regulatory
filings, the NAIC provided to health insurers the following definition
of ``written premium'': the contractually determined amount charged by
the reporting entity [the health insurance company] to the policyholder
for the effective period of the contract based on the expectation of
risk, policy benefits, and expenses association with the coverage
provided by the terms of the contract. Id. at 4.
\100\ Id. at 4.
---------------------------------------------------------------------------
To illustrate how making any changes to agent and broker
commissions would have a negative impact on consumers, the letter used
data from Maine's request for a MLR waiver.\101\ At the time, this kind
of detailed data on agent and broker commissions in the individual and
group markets was not widely available, but Mega Life & Health
Insurance Company (Mega), one of Maine's three major health insurers,
was required to disclose it as part of the MLR waiver process. The
figure below shows how Mega used its policyholder's premium dollars.
---------------------------------------------------------------------------
\101\ Id. at 6. The ACA allows the Secretary of Health and Human
Services to adjust MLR standards for a state if the state can
demonstrate that requiring insurers to meet the 80 percent threshold
could destabilize the individual market, resulting in fewer choices for
consumers. A total of 17 states (ME, NH, NV, KY, FL, GA, ND, IA, LA,
KS, DE, IN, MI, TX, OK, NC, WI) have applied for MLR adjustments.
Centers for Medicare and Medicaid Services, State Requests for MLR
Adjustment (online at http://www.cms.gov/CCIIO/Programs-and-
Initiatives/Health-Insurance-Market-Reforms/
state_mlr_adj_requests.html).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In its filing, Mega showed that it used 68 cents out of every
dollar on medical expenses and used the remaining 32 cents for
administrative costs and profit.\102\ Of the 32 cents spent on
nonmedical expenses, a full third was spent on paying commissions to
agents and brokers.\103\ Had Mega been subject to the ACA's MLR
provision--with medical premiums of approximately $25 million dollars
and a medical loss ratio of 68 percent--it would have owed its almost
14,000 Maine customers a $3 million rebate or about $218 per
customer.\104\ In contrast, under the McCarty proposal, Mega's $3
million rebate would have decreased to $1 million, denying consumers 66
percent percent of their rebate. According to Chairman Rockefeller,
this meant ``money that was intended to give consumers relief from the
high cost of health care would instead be converted into additional
revenue for agents, brokers, and health insurance companies.'' \105\
---------------------------------------------------------------------------
\102\ Letter from Chairman John D. Rockefeller to Susan E. Voss,
President, National Association of Insurance Commissioners, at 6-7
(Mar. 15, 2011).
\103\ Id. at 7.
\104\ Id.
\105\ Id. at 8.
---------------------------------------------------------------------------
The Chairman's final point was to note that agents and brokers
earned more revenue when policyholders paid higher premiums and that
any reforms like the MLR that sought to decrease what consumers paid in
health premiums would also result in decreased income for agents and
brokers. With insurance premiums rising at an average annual rate of 6-
7 percent over the preceding 10 years, the commission of an insurance
agent or broker (in absolute dollars) had roughly doubled.\106\ As
health insurance companies began the process of reviewing their
administrative costs in order to be compliant with the ACA's MLR
provision any reductions in health insurance premiums increases would
invariably feel like a cut to agents and brokers.\107\
---------------------------------------------------------------------------
\106\ Id. at 8-9. The figure applies a 10 percent commission to the
average annual premiums for individual health insurance coverage, as
presented in, The Kaiser Family Foundation and Health Research &
Education Trust, Employer Health Benefits: 2010 Annual Survey (Sep. 2,
2010) (online at http://ehbs.kff.org/pdf/2010/8085.pdf).
\107\ Letter from Chairman John D. Rockefeller to Susan E. Voss,
President, National Association of Insurance Commissioners, at 9 (Mar.
15, 2011).
---------------------------------------------------------------------------
The letter concluded by noting that millions of previously
uninsured Americans were soon to be eligible to purchase affordable,
comprehensive health care coverage. Although these plans would be
offered at lower profit margins, insurance companies, agents, and
brokers could expect to see higher sales volume.\108\
---------------------------------------------------------------------------
\108\ Id. at 11.
---------------------------------------------------------------------------
b. Spring 2011 NAIC Meeting Austin, Texas
In late March 2011, many of the Nation's insurance commissioners
met in Austin, Texas for the NAIC's Spring national meeting. The
McCarty proposal was part of the meeting agenda, and at this point
encompassed an endorsement of proposed congressional legislation, H.R.
1206, which provided for exclusion of agent and broker fees from the
calculation of administrative costs under the MLR formula.\109\
---------------------------------------------------------------------------
\109\ H.R. 1206, the ``Access to Professional Health Insurance
Advisors Act of 2011'' (112th Congress).
---------------------------------------------------------------------------
Preceding the meeting, in addition to Chairman Rockefeller's
letter, many consumer advocates also voiced concerns regarding the
speed with which the NAIC was moving. Ultimately acknowledging these
concerns, the NAIC's Professional Health Insurance Advisors Task Force
delayed endorsing the McCarty Proposal and instead agreed to further
study the issue through its Health and Managed Care Committee.\110\
After several weeks of data gathering, the Health and Managed Care
Committee delivered its final report (``May Report'') to the NAIC on
May 26, 2011.\111\
---------------------------------------------------------------------------
\110\ Arthur D. Postal, NAIC Panel Seeks More Info Before Backing
Agent MLR Exemption, Consumer Watchdog (Mar. 28, 2011).
\111\ National Association of Insurance Commissioners, Report of
the Health Care Reform Actuarial (B) Working Group to the Health
Insurance and Managed Care (B) Committee on Referral from the
Professional Health Insurance Advisors (EX) Task Force Regarding
Producer Compensation in the PPACA Medical Loss Ratio Calculation (May
26, 2011).
---------------------------------------------------------------------------
c. May 24, 2011, Committee Majority Staff Report on 2010 MLR Rebates
On May 24, 2011, Chairman Rockefeller issued a Senate Commerce
Committee majority staff report (``May 2011 Commerce Committee
Report''), marking the first time that estimated savings from the ACA's
MLR provision had been quantified using the health insurance companies'
own data. Based on preliminary data gathered by the NAIC, the report
showed that consumers nationwide would have received almost $2 billion
in rebates from their health insurance companies if the MLR provision
had been in place for the 2010 reporting year.\112\ It also found that
more than half of consumers in the individual market would have
received rebates in 2010.
---------------------------------------------------------------------------
\112\ Senate Committee on Commerce, Science, and Transportation,
Majority Staff Report on Consumer Health Insurance Savings Under the
Medical Loss Ratio Law, at 1 (May 24, 2011).
---------------------------------------------------------------------------
The May 2011 Commerce Committee Report also showed that removing
agent and broker commissions from the MLR calculation would result in
reduced rebates to consumers by more than 60 percent or nearly $1.1
billion.\113\ The below table represents the impact of removing agent
and broker commissions from the MLR calculation in each market:
---------------------------------------------------------------------------
\113\ Id.
------------------------------------------------------------------------
Estimated Consumer Rebate Estimated Consumer Rebate When
Market Under Current MLR Law ($ Commissions are Excluded from MLR
millions) Calculation ($ millions)
------------------------------------------------------------------------
Indivi $978 $401
dual
------------------------------------------------------------------------
Small $447 $146
Group
------------------------------------------------------------------------
Large $526 $215
Group
------------------------------------------------------------------------
Total $1,951 $762
------------------------------------------------------------------------
According to the NAIC data reviewed in the majority staff report,
if agent and broker commissions had been removed from the MLR
calculation in 2010, consumer's rebates would have reduced from $1.95
billion to $762 million.\114\ The report also provided a detailed
state-by-state breakdown of the rebates consumers would have lost.
---------------------------------------------------------------------------
\114\ Id. at 4.
---------------------------------------------------------------------------
The NAIC's Health Insurance Advisors Task Force, using information
gathered by the Health and Managed Care Committee, would eventually
vote on June 30, 2011, to endorse the proposal to support H.R. 1206,
moving consideration to a plenary group of insurance commissioners. On
July 12, 2011, Commissioner McCarty brought the H.R. 1206 support
proposal before all 50 insurance commissioners for a vote. After
California Commissioner Dave Jones and several other commissioners
expressed opposition to H.R 1206, the NAIC ultimately did not hold a
plenary vote on the proposal.\115\ Although tabled for a time, the
McCarty proposal would reappear at the NAIC's 2011 Fall National
Meeting in Washington D.C.
---------------------------------------------------------------------------
\115\ Arthur D. Postal, PPACA: NAIC Ices Agent Comp MLR Exclusion
Effort, LifeHealthPro (July 12, 2011) (online at http://
www.lifehealthpro.com/2011/07/12/ppaca-naic-ices-agent-comp-mlr-
exclusion-effort).
---------------------------------------------------------------------------
d. November 21, 2011, Letter from Chairman Rockefeller to Commissioner
Kevin McCarty
Just prior to the NAIC's Fall 2011 meeting, Chairman Rockefeller
wrote to Commissioner McCarty reiterating that removal of agent and
broker commissions from the MLR calculation would be contrary to
congressional intent. The Chairman's letter pointed out that the NAIC's
own report found that ``a significant number of companies have not
reduced commissions in 2011.'' \116\ Further, based on review of new
data HHS had obtained from states submitting MLR waiver requests, the
letter analyzed the negative impact removing agent and broker
commissions would have in a number of states. The letter noted that
while Kentucky, Georgia, and Delaware all claimed that the MLR was
causing significant disruptions within their agent and broker
communities, ``[t]o date, HHS has not yet found any convincing evidence
that `consumers may be unable to access agents and brokers' under the
minimum [MLR] law.'' \117\ In fact, in Kentucky, agent and broker
commissions had actually increased; Georgia saw no decreases; and only
one of nine insurers in Delaware decreased commissions.\118\
---------------------------------------------------------------------------
\116\ Letter from Chairman John D. Rockefeller to Kevin McCarty,
President-Elect, National Association of Insurance Commissioners, at 2
(Nov. 21, 2011).
\117\ Id. at 3.
\118\ Id. at 3-4.
---------------------------------------------------------------------------
Chairman Rockefeller stressed that while the early effects of the
law had shown that consumers continued to enjoy access to the services
of agents and brokers, any changes to the MLR's treatment of agent and
broker commissions would have a negative impact on consumers. Using
information from the NAIC's May Report, the letter discussed the impact
removing agent and broker commission would have for Florida's health
insurance consumers. The below chart demonstrates this distinction:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
If agent and broker commissions were eliminated from the MLR,
Florida consumers would have lost $142 million or over 60 percent of
the estimated $200 million they would have received in rebates if the
law had been in effect in 2010. Under the McCarty proposal, consumers
would have lost not just hundreds of millions of dollars in annual
rebates, but ``health insurance companies [would] lose the incentive
the current law gives them to run their businesses more efficiently and
deliver a better value to their customers at a lower cost.'' \119\ The
Chairman emphasized his strong support of the agent and broker
community, and at the same time reiterated that any changes to the MLR
could not diminish the value of the expected consumer benefits.
---------------------------------------------------------------------------
\119\ Id. at 5.
---------------------------------------------------------------------------
e. NAIC Endorses Modified McCarty Resolution
On November 22, 2011, Commissioner McCarty introduced a modified
agents and brokers resolution before a plenary of NAIC insurance
commissioners. Instead of fully endorsing H.R. 1206, the resolution
urged HHS to exempt agent and broker commissions from the MLR
calculation and for HHS to place a hold on MLR implementation in order
for state waiver requests to be filed. The resolution passed 26-20
after a 90-minute debate--and two unsuccessful attempts by insurance
commissioners to modify the resolutions language.\120\ Many insurance
commissioners expressed concerns with the resolution. Commissioner
Sandy Praeger, a Republican from Kansas, voiced concern about the
future credibility of the NAIC saying, ``we [NAIC] were written into
the [PPACA] law because we were trusted as experts on this. We are
going so far here as to put our credibility in jeopardy.'' \121\
---------------------------------------------------------------------------
\120\ Elizabeth D. Festa, NAIC Narrowly Passes Resolution Urging
HHS to Exempt Agent Commissions from PPACA Standard, LifeHealthPro
(Nov. 22, 2011) (online at http://www.life
healthpro.com/2011/11/22/naic-narrowly-passes-resolution-urging-hhs-to-
exem?page=3).
\121\ Id.
---------------------------------------------------------------------------
Ultimately H.R. 1206, although reported out of the House Energy and
Commerce Committee, failed to secure a vote on the House floor and died
at the end of the 112th Congressional session.\122\
---------------------------------------------------------------------------
\122\ H.R. 1206, 112th Cong. (2012).
---------------------------------------------------------------------------
III. Conclusion
Prior to health reform, for-profit health insurers carefully
tracked their medical loss ratios and worked to lower them. A low MLR
was a signal to investors that an insurer was spending less on health
care and had more potential money for shareholders. The inclusion of
minimum MLR requirements in health reform changed this dynamic. By
setting a floor on health insurer expenditures of premium dollars for
consumer medical care, the law prevents for-profit insurers from
relentlessly cutting medical expenditures to boost profits.
Today, the medical loss ratio provisions of the health reform law
have already proved to be a significant success story for American
consumers. In the four years since enactment of health reform,
individuals and small businesses across the country have seen billions
of dollars of savings due to the MLR requirements, including $1.6
billion in rebates and hundreds of millions of more due to improved
insurer efficiencies. At the same time the MLR public reporting
requirements have opened a new window into the operations of the
insurance industry, helping consumers compare and choose products, and
providing new data to help policy experts, financial analysts, and
others evaluate industry trends.
Looking forward, the MLR requirements will serve as permanent
incentives for the insurance industry to operate with efficiency and
transparency, and to make sure consumers receive appropriate value for
their premium dollars.
The Chairman. Now, that the dust has settled and the data
is in, it is hard to see what all the fuss was about. Health
insurers who have not met the 80 percent threshold have cut
rebate checks totaling almost $2 billion to their customers.
That is very good news. But the even better news is what people
do not think of, and that is that the law forced insurance
companies to review their operations and reduce their non-
healthcare related costs, and they are doing that. Rebate
amounts are, therefore, dropping, and there is a very simple
reason for that, because health insurance companies increased
their efficiency and the quality of their products. That cost
cutting, by the way, has saved consumers hundreds of millions
of dollars more.
The minimum medical loss ratio is a very simple idea, but
it appears to have had a powerful and very positive effect on
the health insurance market. Consumers are getting a better
deal than they were getting 5 years. I look forward to talking
about how and why this worked in the commercial market, and
whether we can apply it to other parts of our healthcare
sectors, such as Medicaid managed care.
And that is the end of me, and I now present to you my good
friend and distinguished Ranking Member, John Thune, whose
brother is about to be here.
Senator Thune. He is here. Right there.
The Chairman. And so, you are Bob. Bob, I want to tell you,
begging sufferance from membership, that you have a superb
brother. He may be younger than you. And you gone into a
profession which he indicates that your mother probably prefers
that he had gone into. But I would argue that because I would
say he is a superb legislator and a superb senator. I am a
Democrat, he is a Republican. It makes absolutely no difference
whatsoever. We get a lot done together. So the Thune family,
wherever they are at this very moment, should be very proud of
both of you.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman. My gosh. How can I
not say good things about Obamacare now after you do that? I
appreciate that. It is nice to have my brother here. He is
older, by 15 years. He still has all his hair, which is
something that some of us who are losing are a little chagrined
about.
The Chairman. I would not worry.
Senator Thune. Thank you. But I appreciate you having the
hearing, Mr. Chairman, and your diligent work on one particular
issue of the healthcare law, which I think you have given a
tremendous amount of attention to. And I know we are going to
talk a lot about that and hear from our panelists here today. I
want to talk, too, in the broader context about the Affordable
Care Act.
But as we do think about the law and its impact across the
country, I want to underscore a quote from a constituent of
mine, Dale, who wrote to me saying, and I quote, ``I feel the
Federal Government has stolen over $5,000 [per year] from me.''
He is referring to the significant premium increase, as well as
a jump in his deductible, under Obamacare.
Another constituent from South Dakota, Roxanne, received a
quote of $400 more per month, or $4,000 more per year, under
Obamacare than her current health insurance plan. With two kids
to get through college, Roxanne and her husband cannot afford a
total monthly health insurance payment that is more than their
mortgage payment on a monthly basis. So she wrote to me and
said, and I quote, ``Please do something about this. There has
to be a better way.''
So those are just a couple of the continuing frustrations
that I hear from people in South Dakota when it comes to some
of the negative impacts of the Affordable Care Act, otherwise
known as Obamacare. Now, thankfully Dale and Roxanne believe in
a representative democracy that laws can be changed or
repealed, so they along with many others have shared their
stories about the damaging impacts of this law.
The idea of the medical loss ratio provision in the
Affordable Care Act, which has been championed, as I said, by
the Chairman, requires insurers to spend the majority of
premium dollars on efforts to improve healthcare quality, and
it places a cap on administrative costs. Consumers can benefit
under this provision by gaining greater transparency as to how
insurers spend premium dollars, and in some cases, getting a
rebate from insurers that miss the MLR target.
In 2012, the average rebate per family in South Dakota was
$70 for the approximately 700 million individuals who received
a rebate, or just about $5 a month. This is also roughly the
same amount of the previous year's average rebate in my home
state. Now, I know there are other states that have had
different experiences, have seen higher rebates than South
Dakota, but I think it is important to keep the issue in
perspective: approximately 500 million, in MLR rebates were
paid out nationwide in 2012, a figure that is likely to decline
for 2013.
At the same time, recent news accounts show that nearly the
same amount was squandered on the failed health exchanges in
just four states, and hundreds of millions have been wasted on
contractors who have been paid to sit idle in Obamacare
processing centers. It is hard to see this as a net gain for
consumers and taxpayers.
I appreciate the Chairman's dedication to protecting
consumers and the MLR provision. It is well intentioned. We all
want quality healthcare and affordable insurance premiums, but
I worry that the MLR provision and the healthcare law as a
whole are having negative consequences on insured individuals
and the many Americans who are frustrated that promises about
how the legislation was going to work have proven to be untrue.
The intent of the MLR is to help contain spending on health
insurance, which is a laudable goal. But some experts believe
that the MLR could actually increase the cost of premiums and
narrow the competition in the marketplace. I am also concerned
that the MLR regulation put forth by HHS can undermine efforts
by insurers to prevent fraud and abuse, including efforts to
prevent the delivery of inappropriate or unnecessary services
that may harm consumers.
Even if the MLR could be implemented without those
consequences, we cannot ignore the law's larger negative
impact. How do consumers benefit when the cost of other
Obamacare provisions exceed any potential benefits that they
would get from the MLR. As just one example, according to a
summation compiled by the House Ways and Means Committee
regarding estimates from the non-partisan Joint Committee on
Taxation and the CBO, tax increases from Obamacare are
estimated to total $1 trillion over 10 years. Some of those
costs are going to be passed on directly to consumers,
including my constituents in South Dakota and many other
Americans.
Taken as a whole, Obamacare continues to wreak havoc on our
economy and on job creation. More and more Americans are losing
their existing healthcare, and as a result of the employer
mandate, businesses are cutting hours to reduce the number of
full-time employees on their books. Ultimately, the
Congressional Budget Office estimates that due to the decline
in hours worked, Obamacare will result in losses equal to two
and a half million fewer full-time workers.
I want to reiterate what Roxanne wrote to me--``There has
to be a better way.'' Consumers should get appropriate value
for their premium dollars on health insurance, and the MLR is a
well-intentioned attempt at achieving that. But when one steps
back to look at the larger picture, it is increasingly evident
that the many problematic costs in regulations associated with
the healthcare law will almost certainly frustrate that
purpose.
Mr. Chairman, I want to thank you again for holding this
hearing. I look forward to hearing from our witnesses on this
particular subject. And again, credit your hard work on this
element of Obamacare, and wish that I could speak more
favorably about other elements of the bill.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Thune. Incidentally, does
everybody have a copy of this? Do you? OK. Because this is just
like anything else. I mean, this is like the Intelligence
Committee when we are going after the intelligence community,
you write reports. But you always include a lot of reference
notes, in other words, because if you have reference notes,
that means that you can go right back to the person, or to the
e-mail, or to the telephone call, whatever. In other words, it
talks about the accuracy of the report.
Before I begin--no. First, we are going to do it properly.
We are going to go to Mr. Wendell Potter. Any time you do that,
you are doing something useful and good for the country. And
Wendell and I sort of fell into a great friendship when he had
the unbelievable courage to step forward and for the first to
open the chest cavity of insurance company practices and did so
forthrightly, has written books on it, always in a very even
voice without undue attacks or anything else. He just tells it
as he sees it.
So Wendell Potter is an Analyst for the Center for Public
Integrity and a former Health Insurance Executive for Cigna.
Mr. Mark Hall, Professor of Law, from Wake Forest, and Mr. Jack
Ralston. I am going to say something about him because he could
not come. Ms. Katherine Fernandez of Houston, Texas. That is
you. And Mrs. Grace-Marie Turner, President of the Galen
Institute.
Can I just, Wendell, before you start, say that what John
Ralston was going to say, we will make a part of the record
obviously.
[The information referred to follows:]
Prepared Statement of John Ralston, Hampton, Virginia
Chairman Rockefeller, Ranking Member Thune, and members of the
Committee. I want to thank you for inviting me here today. My name is
John Ralston, and I'm President of Bihrle Applied Research located in
Hampton, Virginia. The costs of healthcare have had a significant
impact on the financial well-being of my company. I greatly appreciate
the opportunity to present my perspective.
Bihrle Applied Research is a technology company located in the
Hampton Roads area of Virginia that is involved in the aircraft
testing, flight control and simulation development aspects of both
civil and military aviation. We've been in business for over 40 years
and have worked with most of the world's major and minor aircraft
manufacturers, as well as a majority of the world's governmental
authorities associated with aviation. We have a talented and motivated
staff, and finding and keeping these sorts of people require, among
other things, a health care plan that is at least competitive with
other major companies. Being a small company of 26 engineers and
software developers means that we have limited and somewhat more
expensive choices in this regard. In the earlier years of the company's
history, our health coverage consisted of an expensive plan from a
major provider that had high deductibles, such that most of our people
rarely received any contribution from the provider for any of their
health care. Obviously, this was unpopular and after becoming
president, I examined our options in more detail. We were able to find
a PPO plan with the MAMSI health insurance company that had $10 copays
for most doctor visits and drugs, and while the selection of plan
doctors was adequate, they also paid 80 percent of off-plan visits. We
also added, for the first time in the company history, a very limited
dental plan, one that provided limited coverage for dentist visits,
fillings and x-rays, but nothing for more serious dental work. This was
a significant upgrade in the Bihrle Applied Research's healthcare at
the time, and was very nearly the same cost as our previous plan, with
the company at the time paying the entire cost of the healthcare. This
health insurance company was eventually bought by United Healthcare,
and over the years the cost for family coverage has gradually increased
from approximately $370 permonth in the late 1990s to over $2,000 per
month today. Heath care of the employees is essentially our largest
expense besides salaries, over $300,000 per year for a staff of 26,
essentially equivalent to the company's total tax bill. As the costs
have escalated over the years, we've introduced a number of options for
the employees including the company fully paying for an HMO plan and
allowing employees to pay the difference for varying levels of PPO
plans. Since everyone has eventually opted for the PPO plans, our
current approach pays 85 percent of the total cost for the least of two
PPO plans. Most employees select the highest plan and pay the monthly
difference.
Because of the dominance of health care costs in the company's
finances, we watched the progress of the ACA with concern as to the
impacts on coverage and cost. At the outset of the program, the first
thing that we noticed was no significant change in the rate of increase
of the program cost. Obviously, for the cost per family to go from $368
per month to over $2,000 per month, there had been double digit
percentages of increase nearly every year since we first established
the program. At this point, the increases, while still objectionable,
have stayed consistent with previous years; with 2013 percent increase
dropping slightly. The most welcome effect has been the impact of the
Medical Loss Ratio component of the ACA which, for us, has resulted in
refunds of $5,000 and $6,000 over the last two years. With the
availability of this rebate, the decision was made to use this money to
improve the coverage of the dental plan. This rebate obviously did not
cover the complete amount of the increase, but was enough that the
remaining contribution for the company was acceptable. The upgraded
dental policy now covers more serious dental work and surgery,
including, root canals, crown and implants. In the past two years, this
coverage has been of significant benefit to many of the company
employees, my self included, where I personally was able to save over
$2500 on a recent implant. The overall satisfaction with the company's
health coverage is the highest it has ever been in my 33 year history
with the company.
The epilogue to this story is that we remain hopeful that we will
continue getting the rebate, primarily because we have a healthy staff
that is conscious of their health, so our overall claims have been
relatively low. Health maintenance is something the company encourages
by allowing employees flexible hours for exercise time during the
workday, as well as other support for gym memberships. Nevertheless,
healthcare costs continue to escalate, and at some point we may have to
transfer more cost to the employees. We are hopeful that the rate of
increase will continue to slow. The fact remains that health care is
effectively our largest non-salary cost, and when we compare the total
of our tax and health care costs, we are still at a disadvantage to
European competitors, with their higher taxes, but absence of company
funded health care costs.
The Chairman. But when he got into this, I think he was a
little skeptical at first. But he said that since this thing
went into effect, the percent increase in the cost of coverage
for his employees declined slightly in 2013 from previous
years. The company received medical loss ratio refunds of
$5,000 to $6,000 over the last 2 years. This rebate money he
put to work improving the dental plan that the company
provides, which Mr. Ralston said has been of significant
benefit to many of the company's employees. So he is pleased.
And I am pleased to introduce Wendell Potter.
STATEMENT OF WENDELL POTTER, ANALYST, CENTER FOR PUBLIC
INTEGRITY AND FORMER HEALTH INSURANCE
EXECUTIVE
Mr. Potter. Mr. Chairman, Ranking Member Thune, and members
of the Committee, thank you for the opportunity to be here this
afternoon. I also want to thank you, Mr. Chairman, for your
tireless efforts to ensure that the Affordable Care Act
contains language to address what had been a steady decrease in
the medical loss ratio over more than a decade. As a result of
the MLR provision in the law, Americans with private health
insurance have saved billions of dollars that otherwise would
have gone to unnecessary overhead and excess profits.
It has been almost 5 years since I first appeared before
this committee and spoke about the medical loss ratio, which
was then an obscure term that was known by few other than
insurance company executives, Wall Street financial analysts,
and shareholders. As I said then, the average family had almost
no understanding of how influential Wall Street has become and
the decisions made by insurance company executives about how
much of policyholders' premiums would actually be used to pay
for medical care.
I noted that financial analysts and shareholders of
publicly-traded health insurers are as interested in a medical
loss ratio as they are in earnings per share. To win the favor
of influential analysts, executives of four private insurers
had to demonstrate during every quarter every quarterly
earnings call that their companies made more during the most
recent quarter than a year earlier, and that the portion of the
premium going to pay for medical care, or the MLR, was
declining. If they had to acknowledge that the company had to
spend a slightly higher percentage of premiums on medical
claims than anticipated, they knew that some of their investors
would be disappointed enough to sell their shares, which would
inevitably result in a drop in the stock price and the value of
the company.
During my last 10 years as an industry executive, one of my
main responsibilities was to handle financial communications to
the media. In preparing for quarterly earnings reports, the
first numbers that I looked for were the earnings per share in
the medical loss ratio. I could predict with some certainty
whether the company's stock price would go up or down the day
we announced quarterly earnings by looking at just those
numbers. I once saw a competitor's stock price drop 20
percent--20 percent--in a single day when the company reported
that its MLR for the quarter had increased by just one and a
half percent.
In my previous testimony, I detailed some of the actions
insurers took to reduce the chances that analysts and investors
would be disappointed, including dumping policyholders when
they got sick. By requiring insurers to spend at least 80
percent of what policyholders pay in premiums on medical claims
or to improve the quality of care they receive, as the
Affordable Care Act does, the influence of Wall Street has been
reduced.
As you know, a primary goal of the MLR requirements in the
ACA was to help consumers realize fuller value of their health
insurance payments. Since those requirements went into effect
in 2011, that goal has indeed been realized.
Consumers benefit from the MLR requirements in two
significant ways. First, insurers are now operating more cost
efficiently to stay in compliance with the law. As a result,
many policyholders are paying lower premiums than they would
have been charged otherwise. Second, if an insurer fails to
comply and spends less than 80 percent on medical care or 85
percent in the large group market, it has to issue rebates to
its policyholders.
Individuals and families who are not able to get coverage
through an employer have seen the greatest benefit. According
to the Kaiser Family Foundation, the average MLR in the
individual market increases from 78 percent in 2010 to 83
percent in 2012. Researchers at the Foundation estimated that
had it not been for the MLR requirements in the ACA, premiums
in the individual market would have been almost $900 million
higher in 2011, and nearly $2 billion higher in 2012.
As you may know, I had the privilege of serving as a
consumer representative to the National Association of
Insurance Commissioners when that organization was working in
2010 to draft the MLR regulations. The insurance industry
flooded the Commissioners with comment letters as part of an
intense lobbying effort to persuade the NAIC to give insurers
broad latitude to comply with the law. They argued that many of
the activities they had always categorized as administrative in
nature should be counted among quality improvement expenses.
Despite being outspent and out-lobbied by what could be
considered an order of magnitude, the NAIC's consumer
representatives were successful in pushing back against the
industry. Most of the industry's requests were rejected by the
Commissioners as being unreasonable and contrary to the intent
of the law.
The MLR requirements ensure that consumers can now have
greater confidence in knowing that most of what they pay in
premiums will be used to pay for medical care or to improve the
quality of care, and that no more than 20 percent of their
premiums will go to unnecessary overhead or to reward insurance
company executives and shareholders. Overall, the 80/20 rule
has had a positive impact on the pocketbooks of millions of
consumers, and it will continue to help ensure that Americans
can realize the full value of their health insurance payments.
Thank you.
[The prepared statement of Mr. Potter follows:]
Prepared Statement of Wendell Potter, Philadelphia, PA
Mr. Chairman, Ranking Member Thune and members of the Committee,
thank you for the opportunity to be here this afternoon.
I also want to thank you, Mr. Chairman, for your tireless efforts
to ensure that the Affordable Care Act contained language to address
what had been a steady decrease in the medical loss ratio (MLR) over
more than a decade. As a result of the MLR provision in the law,
Americans with private health insurance have saved billions of dollars
that otherwise would have gone to unnecessary overhead and excess
profits.
It has been almost five years since I first appeared before this
committee and spoke about the medical loss ratio, which was then an
obscure term known by few other than insurance company executives, Wall
Street financial analysts and shareholders. As I said then, the average
family had almost no understanding of how influential Wall Street had
become in the decisions made by insurance company executives about how
much of policyholders' premiums would actually be used to pay medical
claims.
I noted that financial analysts and shareholders of publicly traded
health insurers are as interested in the medical loss ratio as they are
in earnings per share. To win the favor of influential analysts,
executives of for-profit insurers had to demonstrate during every
quarterly earnings call that their companies made more money during the
most recent quarter than a year earlier and that the portion of the
premium going to pay medical claims--the MLR--was declining. If they
had to acknowledge that the company had to spend a slightly higher
percentage of premiums on medical claims than anticipated, they knew
that some of their investors would be disappointed enough to sell their
shares, which would inevitably result in a drop in the stock price and
the value of the company.
During my last 10 years as an industry executive, one of my main
responsibilities was to handle financial communications to the media.
In preparing for quarterly earnings reports, the first numbers I looked
for were the earnings per share and the medical loss ratio. I could
predict with some certainty whether the company's stock price would go
up or down the day we announced quarterly earnings by looking at just
those two numbers. I once saw a competitor's stock price drop 20
percent in a single day when the company reported that its MLR for the
quarter had increased by just one and a half percent.
A study conducted by PriceWaterhouseCoopers in 2008 showed how
successful executives at publicly traded companies had been in reducing
the percentage of premium revenue on medical care. The accounting firm
found that the medical loss ratios of the seven largest for-profit
insurers fell from an average of 85.3 percent in 1998 to 81.6 percent
in 2008. By reducing the MLR 3.7 percent over those years, the
insurance companies avoided paying out billions of dollars for medical
care and were able to use that money to reward executives and
shareholders--at the obvious expense of their policyholders.
In my previous testimony, I detailed some of the actions insurers
took to reduce the chances that analysts and investors would be
disappointed, including dumping policyholders when they got sick. By
requiring insurers to spend at least 80 percent of what policyholders
pay in premiums on medical claims or to improve the quality of care
they receive, as the Affordable Care Act does, the influence of Wall
Street has been reduced.
As you know, a primary goal of the MLR requirements in the ACA was
to help consumers realize fuller value of their health insurance
payments. Since those requirements went into effect in 2011, that goal
has indeed been realized.
Consumers benefit from the MLR requirements in two significant
ways. First, insurers are now operating more cost-efficiently to stay
in compliance with the law. As a result, many policyholders are paying
lower premiums than they would have been charged otherwise. Second, if
an insurer fails to comply and spends less than 80 percent on medical
care--or 85 percent in the large group market--it has to issue rebates
to its policyholders.
Individuals and families who are not able to get coverage through
an employer have seen the greatest benefit. According to the Kaiser
Family Foundation, the average MLR in the individual market increased
from 78 percent in 2010 to 83 percent in 2012. Researchers at the
Foundation estimated that had it not been for the MLR requirements in
the ACA, premiums in the individual market would have been $856 million
higher in 2011 and $1.9 billion higher in 2012.
During my two decades in the insurance industry, my colleagues and
I never tired of saying that steps needed to be taken to remove costs
from the U.S. health care system. Although the industry spent
considerable time and resources lobbying against the MLR requirements--
and later to try to shape the regulations pertaining to the
requirements--the 80/20 rule, as it is often called, has done what the
industry said was needed. During the first two years that the rule has
been in effect, according to a report published earlier this month by
the Commonwealth Fund, at least $3 billion in costs were removed from
our health care system, with American consumers being the beneficiary.
Approximately half of those savings were in the form or rebates:
$1.1 billion in 2011 and $513 million in 2012. Insurers sent out fewer
rebate checks in 2012 than in 2011 because most of them quickly
implemented the changes necessary to stay in compliance with the law.
Had the MLR requirement been in effect in 2010, by the way, consumers
across all the market segments would have received close to $2 billion
in rebates, according to the Commonwealth Fund. Imagine how much
consumers would have saved if the requirement had been in effect during
earlier years.
The other way consumers have benefited is the reduction in overhead
in the insurance industry. The Commonwealth Fund calculated that $1.75
billion in overhead was eliminated during the first two years alone.
Most of those savings came in 2012 as health insurers continued to
reduce their administrative and sales costs, such as brokers' fees,
without increasing their profit margins.
It's important to note that although broker commissions decreased
by almost $300 million across all market segments in 2012, that
represented only about 3.5 percent of total broker expense that year.
As you may know, I had the privilege of serving as a consumer
representative to the National Association of Insurance Commissioners
when that organization was working in 2010 to draft the MLR
regulations. The insurance industry flooded the commissioners with
comment letters as part of an intense lobbying effort to persuade the
NAIC to give insurers broad latitude to comply with the law. They
argued that many of the activities they had always categorized as
administrative in nature--such as their spending to reduce fraud and to
meet accreditation requirements--should be counted among quality
improvement expenses. And lobbyists for insurers and brokers joined
forces in an intense campaign to get broker fees exempted from the MLR
equation. Despite being outspent and out-lobbied by what could be
considered an order of magnitude, the NAIC's consumer representatives
were successful in pushing back against the industry. Most of the
industry's requests were rejected by the commissioners as being
unreasonable and contrary to the intent of the law.
It's worth noting that some critics predicted that the MLR
requirements would result in a mass exodus of insurers from the
marketplace. That has not happened. In fact, insurers have continued to
do quite well financially since the MLR rules went into effect.
According to an analysis by the Commonwealth Fund, insurers' total
profits for all markets have declined by only 0.1 percent of premiums.
Another benefit of the MLR requirements to consumers as well as to
policymakers and regulators is the enhanced transparency they have
brought to the insurance industry. We now have much better insights
into how insurers spend the premiums they collect from policyholders as
a result of the additional reporting requirements.
We have learned, for example, that nonprofit insurers have done a
much better job of complying with the 80/20 rule than their for-profit
competitors. As Commonwealth Fund researchers noted in a report last
year, publicly traded insurers appear to aim their pricing closer to
the minimum loss ratio, no doubt because that is what Wall Street
demands they do. Their adjusted MLR marketwide has been ``virtually
identical'' to the 80 percent limit.
The researchers found that only eight percent of nonprofit insurers
owed a rebate in the individual market in 2011 compared with 47 percent
of for-profit insurers. Additionally, the average amount of the rebates
owed by the nonprofits were considerably lower than those owed by the
for-profits.
Still, all consumers, whether enrolled in a plan operated by a
nonprofit or for-profit company, continue to benefit from what has
become one of the most important cost-saving provisions of the
Affordable Care Act.
The MLR requirements ensure that consumers can now have greater
confidence in knowing that most of what they pay in premiums will be
used to pay for medical care or improve the quality of that care, and
that no more than 20 percent of their premiums will go to unnecessary
overhead or to reward insurance company executives and shareholders.
Overall, the 80/20 rule has had a very positive impact on the
pocketbooks of millions of consumers, and it will continue to help
ensure that Americans can realize the full value of their health
insurance payments.
Thank you.
The Chairman. Thank you, sir, very much.
Mr. Mark Hall, Professor of Law, Wake Forest University.
STATEMENT OF MARK A. HALL, PROFESSOR OF LAW AND PUBLIC HEALTH,
WAKE FOREST UNIVERSITY
Mr. Hall. Chairman Rockefeller, Ranking Member Thune, and
distinguished members of this committee, it is a true honor to
speak before you about the work that Dr. Michael McCue and I
have done, who is with us here from Virginia Commonwealth
University, over the last few years analyzing data regarding
the medical loss ratio and reported in a series of publications
issued by the Commonwealth Fund, and published with Health
Affairs.
I will briefly make three sets of remarks, the first
speaking to the primary consumer benefits from the 80/20 rule,
amplifying some of what Mr. Potter said. Second, talking about
some of the secondary beneficiaries or potential drawbacks of
the rule, and third, thinking very briefly about possibilities
for expanding or improving the rule.
I think one of the remarkable things about the Federal MLR
rule is this transformation of the MLR from a measure of keen
consumer interest that Mr. Potter described under which a lower
medical loss ratio was better. The whole concept of medical
loss emphasizes that from an investor's point of view, it was a
bad thing to pay medical claims. And now, the MLR has been
turned 180 degrees in the other direction, viewing it as an
indicator of consumer value in which a higher MLR is better for
consumers because this means that the premium dollars are being
used more effectively to provide benefits, and perhaps it
should be renamed the medical benefit ratio instead of the
medical loss ratio to signify this remarkable transformation of
the indicator of consumer value rather than a potential for
investor profits.
Now, that said, it is not the perfect measure of all things
of consumer value. There are certainly things--aspects of
administrative expenses that bring consumer value, such as some
part of administrative expenses go to attempting to lower
claims cost and, therefore, producing lower premiums. Also
paying some of the sales costs helps to educate consumers in
terms of their options and help them make the best choices. And
these things count on the negative side of the equation.
This is not to mean that they provide no value, but that
the key value that people look for in insurance is providing
and paying for medical care. And so, it is not the perfect
measure or the sole measure for consumer value, but it is
certainly a very good measure, and one that has been brought
much more to prominence as a result of this Federal rule.
Obviously the direct rebates are the most direct indicator
of consumer value, and the $1.6 billion that has been awarded
over the first 2 years is quite substantial. This year's
rebates will not be announced until August, I believe, and we
will see whether the numbers continue at that level or drop
down. But as the Chairman noted, the fact that the rebates may
diminish does not undercut the second set of direct consumer
benefits from the MLR rule, which is simply that under the
spotlight of regulatory oversight, insurers are induced to make
their products more efficient by reducing their administrative
costs and profits, their non-medical overhead.
And that reduction so far has been at least as significant
as the rebates. The work Dr. McCue and I have done indicates
something like one and three-quarter billion dollars reduction
in non-medical overhead over the first two years. Others have
indicated as much as a $3 billion reduction in overhead.
And it is not simply the size of these numbers, but the
fact that--I use the analogy that it is like a dieter who loses
weight. You have the benefit of that during the first year, but
it is the sort of consumer gift that keeps on giving. As long
as those reduced, sort of leaner, products, leaner overhead,
remains in place year after year, consumers receive the benefit
of that even if it does not grow larger.
Now, considering some of the possible drawbacks, as the
Chairman noted, a vast set of dire consequences were predicted,
but these really have not been experienced at all. To the
contrary, the insurance industry looks quite strong judged by
the stock market. Stock prices have gone up considerably more
than the market wide averages since the MLR rule went into
effect, reflecting not only the lack of its harming the
industry, but also the Affordable Care Act as a whole.
Nor have we seen this exodus of insurers that was predicted
from the regulated market. The notion that their profits might
be regulated led a number of insurers to say, you know, we are
going to leave the market. There has been some contraction, but
it is more or less in line with the contraction we have seen in
the industry as a whole over the last few years. And we still
have roughly 500 insurers in each significant market segment
throughout the country. And insurers in particular are entering
the individual market, which is the market that was the most
directly affected by the MLR rule, so certainly no indication
there of any harms.
Regarding potential changes to the rule, from where I sit
the rule seems to be working well. It could obviously always be
improved or tweaked in various ways. But the one area that is
not addressed by the MLR rule is Medicaid managed care
companies, private insurers that provide through Medicaid. And
states do have some oversight of the MLRs for Medicaid managed
care companies, but as the situation was before, the Federal
rule for commercial insurers, as the Chairman noted, the rules
are not uniform, and they are not comprehensive across the
country.
So that is an area where I do not have a position staked
out, but it is certainly worth more investigation for whether
perhaps some of the benefits, not just in terms of setting a
minimum, but also standardization and transparency all
following the same rule and all being sort of clear what the
rule is and how well it is being met, I think are benefits--
secondary benefits that we have seen that could well extend to
other areas of healthcare spending.
So thank you for your time, and I would be happy to answer
questions.
[The prepared statement of Mr. Hall follows:]
Prepared Statement of Mark A. Hall, Professor of Law and Public Health,
Wake Forest University and Michael J. McCue, Professor of Health
Administration, Virginia Commonwealth University
Chairman Rockefeller, Ranking Member Thune, and distinguished
Members of the Committee, thank you for the opportunity to testify
today about the Federal regulation of health insurers' medical loss
ratios (MLRs). This is a topic that my colleague, Dr. Michael McCue at
Virginia Commonwealth, and I have studied in depth for the past two
years as reported in a series of publications with the Commonwealth
Fund.\1\
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\1\ M. J. McCue and M. A. Hall, The Federal Medical Loss Ratio
Rule: Implications for Consumers in Year 2, The Commonwealth Fund, May
2014
M. McCue, M. Hall, and X. Liu, ``Impact of Medical Loss Regulation
on the Financial Performance of Health Insurers,'' Health Affairs,
Sept. 2013 32(9):1546-51.
Mark A. Hall and Michael J. McCue, Insurers' Medical Loss Ratios
and Quality Improvement Spending in 2011, The Commonwealth Fund, March
2013.
M. J. McCue and M. A. Hall, Insurers' Responses to Regulation of
Medical Loss Ratios, The Commonwealth Fund, December 2012.
---------------------------------------------------------------------------
I will divide my remarks into three parts: (1) the primary consumer
benefits from the Affordable Care Act's (ACA's) MLR rule; (2) secondary
benefits or harms from this rule; and (3) opportunities for expanding
or improving the rule.
Direct Consumer Benefits
Traditionally, the MLR has been used mainly as an indicator of
financial strength. For investors or lenders, a lower MLR is more
favorable because it signals the potential for higher profits. The
ACA's MLR rule has reversed this directional field--focusing on the MLR
as a measure of consumer value. For consumers, a higher MLR is more
favorable because this means that a greater portion of the premium
dollar is going to pay for medical treatment and quality improvement
activities rather than for sales expenses, administrative overhead, or
profits. The MLR is not a perfect measure for consumer value; some
portion of administrative expense is used to reduce medical costs,
which can bring consumer value by reducing total premium costs. No
performance measure is perfect. But, despite its limitations, the MLR
is a very useful measure of efficiency and consumer value.
Under the ACA, the most direct consumer benefit from a minimum
medical loss ratio is to require health insurers to rebate to consumer
any amounts by which they fall short of the minimum. Thus, in the
individual or small group markets, where the minimum MLR is 80 percent,
if an individual insurer spends only 75 percent of its premium dollars
on medical claims and quality improvement expenses in a year, it must
rebate five percent of its premiums to subscribers after year-end
accounting. The minimum MLR for large groups is 85 percent, reflecting
the greater economies of scale in that market segment.
The ACA's MLR rule took effect in 2011. For that year, health
insurers rebated $1.1 billion to consumers. In 2012, rebates dropped in
half, to $513 million, indicating greater compliance with the minimum
MLRs. Rebates for 2013 will be determined by August of this year.
Consumer benefits from MLR regulation are not restricted to
rebates, however. To avoid having to pay rebates, insurers can increase
their MLRs by reducing overhead expenses and profits. Doing that makes
insurance a better value for consumers. In fact, insurers have done
just this in the first two years under the ACA's MLR rule.\2\ In 2011,
the first year under the MLR rule, health insurers reduced overall
profits and administrative costs by $350 million. Changes in financial
performance were most apparent in the individual market, where the
median medical loss ratio increased by 5.5 percentage points from 2010
to 2011. The median administrative cost ratio declined by 2.6
percentage points, and the median operating margin declined by 1.3
percentage points. Within the individual market, such changes were most
notable among for-profit insurers. These insurers raised their median
medical loss ratio from 72 percent in 2010 to 79 percent in 2011--much
closer to the required minimum level. In 2012, insurers continued to
reduce their administrative and sales costs and their profit margins,
by $1.4 billion overall.
---------------------------------------------------------------------------
\2\ It is not accurate to attribute all such changes to the MLR
rule, but the closer in time that overhead reductions are to the new
MLR rule, the more likely the rule played a major role in encouraging
any increase in health insurers' efficiency.
---------------------------------------------------------------------------
It is not known exactly how much of the reduced overhead these two
years can be attributed to the new MLR regulation rather than market
competition. But, it seems reasonable to estimate that, in the first
two years under this regulation, total consumer benefits related to the
MLR regulation--both in rebates and reduced overhead--amounted to over
$3 billion. It is also important to note that, unlike rebates that are
paid in a single year, a one-year reduction in overhead pays consumer
dividends year after year, as long as the reduction is maintained.
Therefore, even if MLR rebates diminish even further, consumers will
still continue to receive the benefits of reduced overhead year after
year, relative to what it would have been without the improvement in
the MLR.
Secondary Benefits or Harms
Another important benefit of the Federal MLR rule is simply the
transparency and standardization it provides for those who study or
observe health insurers' financial performance and consumer value.
Prior to the ACA, insurers did not consistently report their MLRs in
all states, and the MLR was reported as a fairly coarse measure. As a
result of the ACA's new Federal rule, MLRs are now adjusted for
relevant factors such as insurers' size and types of products. Also,
all health insurers now must consistently report their MLR and rebate
data to CMS's Center for Consumer Information & Insurance Oversight
(CCIIO). This agency releases to the public a detailed database about
insurers' medical and non-medical expenses, and its personnel have been
extremely responsive in providing information to assist our research.
The Federal MLR data source provides more transparency to consumers
and permits more comprehensive and fine-grained analyses by public
policy researchers. For instance, we now know for the first time how
much insurers report spending on five types of quality improvement
activities. And, we can analyze how different types of insurers
(nonprofit, investor-owned, provider-sponsored) differ in their various
financial measures.
Some analysts initially predicted that Federal regulation of MRLs
would cause financial distress, perhaps severe, in the health insurance
industry. To the contrary, there is no convincing evidence so far that
the MLR rule has weakened the insurance industry. The individual market
has become somewhat less profitable, operating at a 1 to 2 percent
loss, but the group markets continue to generate operating profits in
the range of 3 to 4 percent of premiums (before taxes and not
considering earnings from investments and other lines of business). The
industry's financial strength is confirmed by the stock market, where
health insurers' stock prices have increased substantially more than
marketwide averages since the ACA was enacted.\3\
---------------------------------------------------------------------------
\3\ Pradip Sigdyal & Giovanny Moreano, Surging Health Care Index
Sets Another Record, CNBC (Apr. 2, 2013), www.cnbc.com/id/100538665;
Anna Bernasek, The Dawn Of Obamacare Hasn't Hurt Insurers' Stocks, N.Y.
TIMES, Oct. 27, 2013, at BU7, http://www.nytimes.com/2013/10/27/
business/insurers-stocks-unhurt-by-the-dawn-of-obamacare.html.
---------------------------------------------------------------------------
Also, the MLR regulation has not caused anything like the exodus of
insurers that was prophesized by some. Between 2011 and 2012, there was
been a small reduction in the number of active insurers, consistent
with the marketwide consolidation that was ongoing prior to the ACA.
But still, throughout the country there were roughly 500 insurers with
at least 1,000 members in each market segment (individual, small-group,
and large-group).
Future Considerations
The ACA's MLR rule applies to commercial health insurance. A
separate provision in the ACA also sets a minimum of 85 percent for
private plans sold through Medicare (Medicare Advantage and Medicare
Part D). There is no Federal rule, however, for the MLRs of private
managed care organizations (MCOs) that provide coverage under Medicaid.
About a dozen states set their own Medicaid standards, however, and
others consider MLRs when they negotiate Medicaid payment rates with
private managed care plans.\4\
---------------------------------------------------------------------------
\4\ Kaiser Family Foundation, Medicaid MCOs and Medical Loss Ratio
(MLR) Requirements (April 2012), http://kff.org/medicaid/fact-sheet/
medicaid-mcos-and-medical-loss-ratio-mlr/.
---------------------------------------------------------------------------
In view of the substantial expansion of Medicaid that the Federal
government is funding through the ACA, this Committee might want to
consider whether the current state-based system of MLR oversight for
Medicaid plans is functioning optimally. Dr. McCue and I have not done
an extensive analysis of MLRs for Medicaid MCOs. However, our initial
review of NAIC and other state data from 2011 indicates that,
nationwide, the median MLR among Medicaid MCOs is about 87 percent. Of
211 such plans, 75 of them (35 percent) reported MLRs below 85 percent,
and 30 (or 14 percent) reported MLRs below 80 percent.
In addition to bringing the bottom of this distribution up to a
level considered acceptable, another potential benefit of a Federal MLR
rule for Medicaid could be greater uniformity in how Medicaid MCOs
measure and report their MLRs. One issue on which states vary is the
extent to which Medicaid MCOs may count care management/coordination
expenses as medical costs vs. administrative overhead. Also, it is not
clear how states do (or should) account for Medicaid MCOs that
subcontract with other organizations or provider groups on a capitated
basis. Subcapitation occurs with some frequency, but when it does, it
is not clear to us whether the entire capitated amount should count as
a medical expense, or instead wither the sub-contractor's own
administrative expenses and profits count toward the ``parent'' MCO's
non-medical overhead (by reducing how much of its capitation payment
counts as ``medical'').
A Federal rule would standardize these accounting and reporting
conventions. A uniform rule would also provide the opportunity for
collective deliberation over which of various accounting approaches is
superior. On the other hand, states vary in the extent to which their
Medicaid MCO programs cover different populations with diverse health
care needs, such as children, disabled adults and the elderly. Also,
states differ in how they develop capitation rates for these different
populations. This variation may make it more difficult to adopt a
single metric that applies nationally.
Thank you for this opportunity to testify. I will be happy to
answer any questions.
The Chairman. Thank you very, very much. And Senator Thune
has given me permission to call--this out of order, and,
therefore, I apologize, but it is worth it because it is
Senator Amy Klobuchar. She wants to talk about 30 seconds. She
has to go to a very important meeting.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. I just want to thank you, Mr. Chairman,
for holding this hearing, and echo what Senator Thune said
about your leadership and what this has meant. I can tell you
in my state, we actually were an early state, a long history,
as many of our witnesses know, in leading the way in
healthcare, and the issue of medical loss ratio is no
different.
Beginning in 1993, we required insurers to spend a minimum
amount of premium dollars on healthcare and quality for
consumers. I think we all know that was not happening in every
State, and that is why this was so important. We basically had
a patchwork system.
So far under this new rule, Minnesotans have received--
people and businesses have received about $10 million in
rebates. And I just want to thank you for the work on this,
even for a state like ours that was ahead of our time and
continues to like to see more of a focus on delivery system
reform even beyond the medical loss ratio in terms of high
quality, low cost care. This is a major part of it, and I want
to thank you for your work.
The Chairman. Thank you, Senator Klobuchar. In honesty, I
have to be fair. Senator Johnson, if you have anything. No? OK.
Then Ms. Katherine Fernandez of Houston, Texas.
STATEMENT OF KATHERINE FERNANDEZ, HOUSTON, TEXAS
Ms. Fernandez. Chairman Rockefeller, Ranking Member Thune,
and members of the Committee, thank you for inviting me to
speak today. My husband, Louis, and I have been self-employed
for nearly 33 years in Houston in various aspects of
residential construction. We grew from a trim carpentry company
in 1981 to a full-service remodeling company which was active
until 2003. Now, we have two businesses, My Design Team which
we founded in 2003 and my Cabinet Source which we founded in
2010. We have two children, Michael, aged 29, who is a grad
student, and Sarah, who is 24 and a sign language interpreter.
Evaluating, qualifying for, paying for, and keeping health
insurance took a lot of time because we did not qualify for
group health insurance plans. I felt like I was gambling with
our future. What health crisis would occur, and what could we
afford to spend for insurance when there were compelling
medical expenses which did not apply to our deductibles.
Michael and Louis both had preexisting conditions, which meant
their plans had exclusion clauses.
There were lean years in the 1990s when we had no insurance
and relied on public clinics, charities, and home remedies. I
was resourceful and carefully apportioned our medical spending
to make every penny count. And my mom says she remembers that
we just did not go to the doctor.
After that, I juggled two or three health plans at a time,
balancing cost and risk. Insurance companies sent biannual
notices increasing rates and offering choices of higher
deductibles with reduced coverage and lower cost. Hours were
spent fretting about what we could afford, and I worried about
the chances we were taking. If more than one person got sick,
could we pay two or three deductibles? Could we afford
necessary healthcare not covered by insurance? It was like
walking a tight rope with no net.
Between 2000 and 2003, we had two policies, and the
insurance cost increased about 165 percent. From 2004 to 2005,
despite adjusting the coverage and deductibles, the costs rose
yet again over 30 percent. Mike went to college, and I bought a
low cost student health insurance plan for him. In 2006, Louis
stayed on our original plan, while Sarah and I moved to a less
expensive one. We kept the three plans despite combined
increases of 45 percent until 2009 when Mike graduated from U
of H and got a Presidential fellowship for grad school at
Columbia, and it included health insurance. It was a relief.
The Affordable Care Act became law in 2009, and I was
elated. No more preexisting condition clauses, and we could not
be dropped by insurance with no reason. No lifetime limits on
coverage was great, and there would be preventative care with
no co-pay. Insurance companies had to refund some of what we
paid if they did not spend enough. What reasonable ideas.
In 2010, Sarah was on a student plan, and I had a low cost
HSA eligible plan. Louis kept his original plan, but with an
increased deductible. The cost still rose about 25 percent by
the end of 2011. In 2012, I moved Louis to an HSA plan, and we
upped the deductible so our coverage would cost less than
before. Then the cost of my policy actually decreased in April
from $316 to $310 a month. I was amazed, and I credited the
ACA.
Fortunately, Sarah was still on her student plan because in
April 2012 she became very sick and spent six days in the
emergency room and hospital. For the first time ever, we met
our insurance deductibles.
Letters from the insurance companies in July 2012 told us
there would be an ACA medical loss ratio rebate for our 2011
insurance. The three checks added up to $794.82. I could hardly
believe it. Our insurance cost just over $10,400 in 2011, and
that refund was for 7.6 percent of the amount. I used the money
to pay the next month's insurance bills.
Sarah graduated from Lamar College in May 2013 and was
hired as a sign language interpreter. In July she proudly
bought her own health insurance, so Louis and I were down to
two HSA eligible plans. In July 2013, the insurance companies
sent medical loss ratio payments for 2012. This time the three
checks added up to $228.51. It was less than the next month's
insurance, but was 2.6 percent of the $8,642 we spent on
insurance in 2012.
Last year, our plans cost over $8,800, so I hope we will
get medical loss ratio refunds again. Even more, I hope the
insurance company cost estimates become more accurate so the
money stays in the wallets of consumers like where it can do
some good.
During the past 14 years, we have paid over $100,000 for
health insurance. These were bare bone plans with high
deductibles, not gold policies. Between 2000 and 2010, we spent
about $72,000. If the 7.6 percent medical loss ratio refund for
2011 is an indicator, we overpaid about $5,500 during those 11
years, about $500 per year. Truly the ACA medical loss ratio
provision was long overdue.
In December of this past year, I braved the health
insurance marketplace and spent hours researching policies and
more time trying to get the website to work. For the first time
since 2005, my husband and I are on the same health plan, a
silver plan PPO, and it feels pretty good.
The ACA medical loss ratio provision makes our healthcare
dollars work better for us. Buying insurance is not as
complicated and less of a gamble because the companies must
return what they do not spend for healthcare, and basic
preventative care is covered, too.
Thank you for giving me the opportunity to share my story,
and I will be happy to answer any questions you might have.
[The prepared statement of Ms. Fernandez follows:]
Prepared Statement of Katy Fernandez
Chairman Rockefeller, Ranking Member Thune, and members of the
Committee,
Thank you for inviting me to speak today. I am Katy Fernandez. My
husband Louis and I have been self-employed for nearly 33 years in
Houston in various aspects of residential construction. We started with
a trim carpentry company in 1981, which grew into a full service
remodeling company, which was active between 1988 and 2003. We
currently own two businesses: My Design Team (founded in 2003) and My
Cabinet Source (founded in 2010). Our children are Michael, age 29, a
grad student; and Sarah, age 24, a sign language interpreter.
Evaluating, qualifying for, paying for, and keeping health
insurance took a lot of my time since we didn't qualify for group
health plans. I tried to determine the best way to handle health care
for our family and felt like I was gambling with our future--how could
I predict what health crises would occur, and what we could afford to
spend on health insurance when there were compelling medical expenses
\1\ which didn't apply to our deductibles. Michael \2\ and Louis \3\
both had pre-existing conditions, which meant the plans we could get
had exclusion clauses.
---------------------------------------------------------------------------
\1\ Including chiropractic, acupuncture, orthopedic braces, dental
care and glasses.
\2\ From birth, Mike had a benign muscle weakness and insurance
explicitly excluded everything related to this. As a teenager, he
developed scoliosis, which led to additional exclusion clauses.
\3\ Louis contracted chronic Lyme disease, which was not diagnosed
for many years because the various symptoms didn't look like they were
related. After it was diagnosed, he couldn't change policies due to
this ``pre-existing condition''.
---------------------------------------------------------------------------
There were lean years in the 1990s where we had no insurance and
relied on public clinics, charities,\4\ and home remedies. I was
resourceful, and carefully apportioned our medical spending to make
every penny count.
---------------------------------------------------------------------------
\4\ MDA and Shriners
---------------------------------------------------------------------------
After that, I juggled two or three health plans at a time,
balancing expenses and risk. Insurance companies sent biannual notices
increasing rates, and offering ``choices'' of higher deductibles with
less coverage at reduced cost. I spent hours fretting what we could
afford, and worried about the chances we were taking. If more than one
person got sick--could we pay two or three deductibles? Could we afford
health care not covered by insurance if we were paying so much for
insurance? It was like walking a tightrope with no net.
Between 2000 and 2003, we had two policies, and the insurance cost
increased about 165 percent. In 2004-2005, I adjusted coverage and
deductibles, yet the cost of this new arrangement rose over 30 percent
during those two years. Mike went to college and I bought a student
insurance plan to save a little money. In 2006, Louis stayed on the
original plan, while Sarah and I moved to a lower cost one. We kept
these three plans, despite combined increases of 45 percent, until
2009, when Michael graduated from UH and received a Presidential
Fellowship which included health insurance at Columbia. What a relief.
The Affordable Care Act became law in 2009, and I was elated. No
more pre-existing condition clauses and we couldn't be dropped by
insurance for no reason. Lifting lifetime limits on coverage was great,
and there would be preventative care with no copay. Insurance companies
had to refund some of what we paid, if they didn't spend enough. What
reasonable ideas.
In 2010, Sarah had a student plan and I had a low cost HSA eligible
plan. We kept the Louis' original plan, and increased the deductible.
The cost still rose about 25 percent by the end of 2011.
In 2012, I moved Louis to an HSA Plan and upped our deductibles, so
our coverage cost less than before. When the cost of my policy
decreased from $316 a month to $310 in April, I was amazed! I credited
the ACA.
I kept Sarah on the student plan. This was fortunate, because she
became very sick in April, 2012, and spent six days in the emergency
room and hospital. For the first time ever, we met an insurance
deductible.
In July 2012, letters came from the insurance companies notifying
us of rebates required by the ACA Medical Loss Ratio for plans bought
in 2011. The three checks added up to $794.82.\5\ I could hardly
believe it. Insurance cost just over $10,400 in 2011 and that refund
was for 7.6 percent of the amount. I used the money to pay the next
month's insurance bills, of $721. 83.
---------------------------------------------------------------------------
\5\ 2011 Rebates: Sarah's Assurant policy was $69.90, Louis' BCBS
was $372.99; Katy's BCBS was $351.93.
---------------------------------------------------------------------------
After Sarah graduated from Lamar College in May, 2013, she was
hired as a sign language interpreter. In July, she proudly bought her
own health insurance, so Louis and I were down to two HSA eligible
plans.
In July, the insurance companies sent ACA Medical Loss Ratio
payments for 2012. This time the three checks added up to $228.51.\6\
It was less than the next month's insurance, but did amount to 2.6
percent of the $8642 we spent on insurance in 2012.
---------------------------------------------------------------------------
\6\ 2012 Rebates: Sarah's Assurant policy was $70.87; Louis' BCBS
was $75.22; Katy's BCBS was $82.42.
---------------------------------------------------------------------------
Last year, our plans cost over $8,800, so I hope we'll get Medical
Loss Ratio refunds again. Even more, I hope the insurance company cost
estimates become more accurate, so that more money stays in the wallets
of consumers like me, where it can do some good.
I figured out that over the past fourteen years we paid for just
over $100,000 for health insurance.\7\ These were bare bones plans with
high deductibles, not ``gold'' policies. Between 2000 and 2010, we
spent about $72,000. If the 7.6 percent Medical Loss Ratio refund for
2011 is an indicator, we overpaid about $5,500 over those eleven years,
about $500 per year. Truly, the ACA Medical Loss Ratio provision was
long overdue.
---------------------------------------------------------------------------
\7\ Fernandez Family insurance plans, monthly payments, and price
changes from 2000-2013
August 2000-April 2001
Louis, Katy, and Sarah: BlueCross Blue Shield (BCBS) Family Plan,
$252/month
Michael: BlueCross BlueShield (BCBS) Individual Plan, $39/month
May 2001-October 2001
Louis, Katy, and Sarah: BCBS Family Plan, $268/month (+$16)
Michael: BCBS Individual Plan, $42/month (+3)
November 2001-April 2002
Louis, Katy, and Sarah: BCBS Family Plan, $349/month (+$81)
Michael: BCBS Individual Plan, $55/month (+13)
May 2002-November 2002
Louis, Katy, and Sarah: BCBS Family Plan, $389/month (+$40)
Michael: BCBS Individual Plan, $61/month (+$6)
December 2002-August 2003
Louis, Katy, and Sarah: BCBS Family Plan, $499/month (+$110)
Michael: BCBS Individual Plan, $79/month (+$18)
September 2003-November 2003
Louis, Katy, and Sarah: BCBS Family Plan, $523/month (+$24)
Michael: BCBS Individual Plan, $79/month (+$0)
December 2003
Louis, Katy, and Sarah: BCBS Family Plan, $669/month (+$146)
Michael: BCBS Individual Plan, $101/month (+$22)
January 2004-July 2004
Louis, Katy, and Sarah (New Plan): BCBS Family Plan, $550/month (-
$119)
Michael: BCBS Individual Plan, $101/month (+$0)
August 2004-November 2004
Louis, Katy, and Sarah: BCBS Family Plan, $550/month (+$0)
Michael: BCBS Individual Plan, $133/month (+$32)
December 2004-May 2005
Louis, Katy, and Sarah: BCBS Family Plan, $596/month (+$46)
Michael: BCBS Individual Plan, $155/month (+$22)
June 2005-July 2005
Louis, Katy, and Sarah: BCBS Family Plan, $635/month (+$39)
Michael: BCBS Individual Plan, $155/month (+$0)
Aug 2005-November 2005
Louis, Katy, and Sarah: BCBS Family Plan, $635/month (+$0)
Michael (New Plan): United American Ins. Co., $126/month (-$29)
December 2005
Louis, Katy, and Sarah: BCBS Family Plan, $721/month (+$86)
Michael: United American Ins. Co., $126/month
January 2006-June 2006
Louis (New Plan): BCBS Individual Plan $291/month
Katy and Sarah (New Plan): Unicare High Ded. Family Plan, $154/
month
Michael: United American Ins. Co., $126/month (+$0)
July 2006-December 2006
Louis: BCBS Individual Plan $291/month (+$0)
Katy and Sarah: Unicare High Ded. Family Plan, $154/month (+$0)
Michael: United American Ins. Co., $143/month (+$17)
January 2007-March 2007
Louis: BCBS Individual Plan $322/month (+$31)
Katy and Sarah: Unicare High Ded. Family Plan, $161/month (+$7)
Michael: United American Ins. Co., $153/month (+$10)
April 2007-September 2007
Louis: BCBS Individual Plan $322/month (+$0)
Katy and Sarah: Unicare High Ded. Family Plan, $169/month (+$8)
Michael: United American Ins. Co., $153/month
October 2007-December 2007
Louis: BCBS Individual Plan $322/month (+$0)
Katy and Sarah: Unicare High Ded. Family Plan, $195/month (+$26)
Michael: United American Ins. Co., $153/month
January 2008-March 2008
Louis: BCBS Individual Plan $363/month (+$41)
Katy and Sarah: Unicare High Ded. Family Plan, $195/month (+$0)
Michael: United American Ins. Co., $153/month (+$0)
April 2008-August 2008
Louis: BCBS Individual Plan $363/month (+$0)
Katy and Sarah: Unicare High Ded. Family Plan, $211/month (+$16)
Michael: United American Ins. Co., $153/month
September 2008-November 2008
Louis: BCBS Individual Plan $363/month (+$0)
Katy and Sarah: Unicare High Ded. Family Plan, $264/month (+$53)
Michael: United American Ins. Co., $153/month (+$0)
December 2008-August 2009
Louis: BCBS Individual Plan $375/month (+$12)
Katy and Sarah: Unicare High Ded. Family Plan, $264/month (+$0)
Michael: United American Ins. Co., $153/month (+$0)
September 2009-November 2009
Louis: BCBS Individual Plan $375/month (+$0)
Katy and Sarah: Unicare High Ded. Family Plan, $324/month (+$60)
December 2009-February 2010
Louis (New Plan): BCBS Individual Plan $323/month (-$52)
Katy and Sarah (New Plan): Unicare High Ded. Family Plan, $300/
month (-$24)
March 2010-November 2010
Louis: BCBS Individual Plan $323/month (+$0)
Katy (New Plan): BCBS HSA Individual Plan, $326/month
Sarah (New Plan): Assurant Student, $98/month
December 2010-February 2011
Louis: BCBS Individual Plan $360/month (+$37)
Katy: BCBS HSA Individual Plan, $344/month (+$22)
Sarah: Assurant Student, $98/month
March 2011-November 2011
Louis: BCBS Individual Plan $360/month (+$0)
Katy: BCBS HSA Individual Plan, $344/month (+$0)
Sarah: Assurant Student, $109/month (+$11)
December 2011
Louis: BCBS Individual Plan $415/month (+$55)
Katy: BCBS HSA Individual Plan, $344/month (+$0)
Sarah: Assurant Student, $109/month (+$0)
January 2012-March 2012
Louis (New Plan): BCBS HSA Individual Plan $283/month (-$132)
Katy (New Plan): BCBS HSA Individual Plan, $316/month (-$28)
Sarah: Assurant Student, $109/month
April 2012-December 2012
Louis: BCBS HSA Individual Plan $283/month (+$0)
Katy: BCBS HSA Individual Plan, $310/month (-$6)
Sarah: Assurant Student, $129/month (+$20)
January 2013-June 2013
Louis: BCBS HSA Individual Plan $298/month (+$15)
Katy: BCBS HSA Individual Plan, $312/month (+$2)
Sarah: Assurant Student, $109/month
July 2013-November 2013
Louis: BCBS HSA Individual Plan $283/month
Katy: BCBS HSA Individual Plan, $312/month
December 2013
Louis: BCBS HSA Individual Plan $362/month (+$79)
Katy: BCBS HSA Individual Plan, $343/month (+$31)
Sarah, Mike, Katy, and Louis in 2012
In December, I braved the Health Insurance Marketplace and spent
hours determining the best policy for us, and more time trying to get
the website to work. For the first time, since 2005, my husband and I
are on the same health plan, a Silver Plan Cigna PPO, and that feels
good.
The ACA Medical Loss Ratio provision makes our health care dollars
work better for us. Buying insurance is less complicated and less of a
gamble because the companies must return what they don't spend for
health care and basic preventative care is covered, too.
Thank you for giving me the opportunity to share my story. I'll be
happy to answer any questions you might have.
The Chairman. Thank you, Ms. Fernandez. That was
extraordinarily direct and sincere testimony. You could sort of
feel the pain as you were talking.
Ms. Fernandez. It was painful.
The Chairman. Yes. Ms. Grace-Marie Turner, President of
Galen Institute. Welcome.
STATEMENT OF GRACE-MARIE TURNER, PRESIDENT,
GALEN INSTITUTE
Ms. Turner. Thank you, Chairman Rockefeller, Ranking Member
Thune, Senator Johnson, for the opportunity to testify today.
Not only am I President of the Galen Institute, I also served
last year as a member of the Long Term Care Commission, and I
want to thank you, Senator Rockefeller, and your hard-working
staff. The Commission would not have been able to get started
without your hard work. And I really appreciate your leadership
and commitment.
And also, I want to thank you for a hearing that you
participated in, I believe a Subcommittee hearing, on July 16,
2009 entitled, ``Competition in the Healthcare Marketplace.''
It was a bipartisan hearing in which there was agreement that
innovation and consumer choice are so important to those on
both sides of the aisle. And I felt it was so important that
the Galen Institute subsequently organized a series of annual
conferences on the value of innovation in healthcare. We
brought people who are doing things like creating the operating
rooms of the future and developing new technologies for
biomedical research to really help policymakers see the value
of reinforcing innovation. And I thank you for your inspiration
for that series of conferences.
So I do not think there is any disagreement that we share
the goal of today's hearing on delivering better healthcare and
better value to consumers. But I am concerned that some
provisions of the ACA may actually be working against that
goal. I explain in more detail in my written testimony, but
just to highlight some key points.
First, higher taxes and fees. Higher taxes on insurance are
passed along to consumers in the form of higher premiums. While
it is too soon to know what the premiums will be for 2015, some
consumers may experience some premium reductions, but many
others are going to see premium increases. And since they were
expecting a $2,500 reduction in premiums per family, even any
small increase is more than they had been expecting.
The 20 new and higher taxes in the health law on things
like drugs, medical devices, and health insurance are actually
increasing premiums. According to the American Academy of
Actuaries, they said, ``In general, insurers pass along the fee
to enrollees through an increase in the premium.'' A tax on
health insurance alone will add between $350 and $400 a year to
premiums in 2016 for a family. And as Senator Thune said, with
nearly a trillion dollars in new taxes, ultimately they do get
passed along to the consumer. I am worried that these
additional costs are going to counteract any efficiencies that
come from the medical loss ratio provision.
Number two, lack of competition. Premiums for health
insurance vary across states as you in your work have certainly
demonstrated. An article last week in the New York Times
explains that a lack of competition is the key reason that
people see such premium differences. For example, a 27-year-old
enrollee in Jackson, Mississippi, may have to pay $336 a month
for health insurance for a silver plan, but that same young
person in Tucson only would pay $138 a month for a similar
plan.
The reason, according to research that I cite in my
testimony, is a lack of competition among insurers. There are
only two insurers in Mississippi, but eight offering plans in
Tucson. If all plans that are operating in those states were to
participate in the exchanges, premiums across the board would
be 11 percent lower. So competition and more participation in
the market I think is crucial to getting premiums down and
protecting consumers.
Third, limiting options for small employers. Small
employers, many of them, have looked to health savings accounts
and other consumer-directed plans to help provide health
insurance to their employees, and also to help keep their costs
down. As Mr. Fernandez was explaining, health savings accounts
have been attractive to many small businesses. But there is a
provision in the medical loss ratio regulation that actually
works against HSAs. The money that a person spends on routine
medical costs out of that account does not count as a medical
expenditure toward the medical loss ratio provision. So they
are disadvantaged in being able to use those consumer-directed
accounts--money they have set aside to pay for routine medical
costs. The medical loss ratio provision works against those
with HSAs.
Then finally, the need for investment in a better system.
In some ways, health plans actually have less incentive to seek
out fraud and abuse. For example, the MLR makes it more
difficult for plans to spend money on fraud detection because
that spending comes out of their administrative calculation.
And also, if they invest in a new delivery system but it does
not fit within the very tight constraints of what is defined as
quality improvement in the law, then plans are again penalized.
This has the impact of impeding innovation and creativity in
trying to get better value for customers.
So finally, I believe that the ACA does need to be amended
and changed going forward, and I look forward to the
opportunity to work with you on this common goal of producing
value, innovation, and protecting consumers. Thank you, Mr.
Chairman.
[The prepared statement of Ms. Turner follows:]
Prepared Statement of Grace-Marie Turner, President, Galen Institute
Chairman Rockefeller, Ranking Member Thune, and members of the
Committee, thank you for the opportunity to testify today on
``Delivering Better Health Care Value to Consumers: The First Three
Years of the Medical Loss Ratio.''
My name is Grace-Marie Turner, and I am president of the Galen
Institute, a non-profit research organization focusing on patient-
centered health policy reform. I served as an appointee to the Medicaid
Commission from 2005-2006, as a member of the Advisory Board of the
Agency for Healthcare Research and Quality, and as a congressional
appointee to the Long Term Care Commission in 2013.
The Long Term Care Commission, as you know, was created as a result
of the repeal of the Community Living Assistance Services and Supports
Act (CLASS Act), repeal legislation that Ranking Member Thune sponsored
and which was enacted after the administration was unable to find a
viable path forward for implementation of the program. I want to thank
you, Chairman Rockefeller, for your leadership and the hard work of
your staff in kick-starting the work of the commission. I believe that
we produced, in our 100-day sprint to complete our work, a valuable
report that gained bi-partisan support for a wide range of important
recommendations.\1\
In addition, Mr. Chairman, I want to thank you for the hearing on
July 16, 2009, on ``Competition in the Healthcare Marketplace'' before
the Subcommittee on Consumer Protection, Product Safety, and Insurance
which Sen. Pryor chaired and which you attended.\2\ I found the hearing
to be extremely valuable in showing the broad bi-partisan support for
competition and innovation in the health sector. As a direct result, we
have subsequently sponsored at the Galen Institute a series of major
annual conferences on ``The Value of Innovation in Health Care.'' We
invite speakers from around the country to describe their work on
health care innovation before policymakers in Washington, from
presentations about the operating room of the future, to the latest
biomedical research technologies, and transformative consumer solutions
such as Walmart's $4 generic drugs program.
Consumer protections
I don't think there would be any disagreement on either side of the
aisle about the goal of today's hearing, entitled ``Delivering Better
Health Care Value to Consumers.'' Consumer protection and transparency
are crucial goals of health reform. To make sure that consumers can
know the amount of premium dollars being spent on medical care versus
administrative expenses, the ACA specifies the medical loss ratio (MLR)
which health plans must meet. Plans participating in the individual and
small group markets must spend at least 80 percent of premium dollars
on medical costs and those in the large group market, 85 percent. Those
who fail to meet the percentages must provide rebates to consumers.
Consumers and businesses already have received rebates from health
insurance companies that failed to meet the MLR requirements. Certainly
they appreciate receiving these checks, but I think it is important to
look at the larger issue of consumer protections to see if the law is
meeting these goals.
While it is too soon to know what premium increases will be in
2015, it is fairly certain that most consumers will see at least modest
increases but others are likely to see significant hikes. Given that
consumers were promised they would save an average of $2,500 a year on
premiums for a family if the ACA were enacted, they are looking for
relief. I believe it is important to look at other factors that are
keeping premiums high.
Higher taxes and fees
The American Academy of Actuaries details in a May 2014 report the
major drivers behind expected 2015 premium increases.\3\ ``The majority
of premium dollars goes to medical claims, which reflect unit costs
(e.g., the price for a given health care service), utilization, the mix
and intensity of services, and plan design.'' Further, the report
explains, ``Premiums must cover administrative costs, including those
related to product development, enrollment, claims processing, and
regulatory compliance. They also must cover taxes, assessments, and
fees, as well as profit (or, for not-for-profit insurers, a
contribution to surplus).''
The report discusses the increase in the health insurer fee, which
collects about $8 billion a year from health insurers this year,
increasing to $14.3 billion in 2018 and more than $100 billion over ten
years.\4\ ``In general, insurers pass along the fee to enrollees
through an increase in the premium,'' the actuaries write. The tax on
health insurance alone will add $350 to $400 to a family's health
insurance premiums in 2016.\5\
Other taxes and fees in the health law also will be passed along to
consumers. These include taxes on medical devices and drugs, new fees
to administer health insurance exchanges, and reinsurance fees to help
offset higher-cost patients in the individual market.
These additional costs directly resulting from the law will be much
larger than any health insurance efficiencies under the MLR.
Lack of competition
Premiums for health insurance vary greatly across the states. A
recent report in The New York Times explains that lack of competition
is a key reason.\6\ For example, a 27 year old enrollee in Jackson,
Mississippi, pays $336 a month for the second cheapest silver plan on
the federally run exchange in the state. That's more than twice what
the same person in Nashville would pay--$154--and more than the $138 a
young person in Tucson would pay for the same policy.
A crucial reason for the price differences: Lack of competition
among insurers. There are only two insurers in the market in
Mississippi. In Nashville's exchange, four insurance companies compete.
In Tucson, eight companies are vying for the 27 year old's business.
More competition leads to lower prices.
Premiums in the exchanges are 11 percent higher than they would be
if all of the insurers participating in a market in each state had
participated in the exchange, according to research soon to be
published by economists Leemore Dafny and Christopher Ody from
Northwestern University and Jonathan Gruber of the Massachusetts
Institute of Technology. Greater competition not only would save
consumers money in lower premiums but it also would save taxpayers
money if they didn't have to subsidize the higher cost of insurance in
these areas with little competition.
When hospitals know that only a few health plans are competing,
they have much less incentive to negotiate discount prices. That
manifests in higher premiums because insurers can't drive as hard a
bargain to reduce costs. The end result of less competition among
health plans is higher costs for consumers.
I include in the appendix to my testimony a list of health
insurance companies that announced they were exiting the market over a
period of 20 months after the law was passed. They are leaving for a
variety of reasons. Some companies decided that they could not viably
compete in the exchanges, others were overburdened with onerous state
regulations, and others left the health insurance market because of
concerns about the ACA's costs and regulations.
Consumers need more, not less, competition, both from existing as
well as new innovative companies, in order to contain premium costs.
Limiting options for small employers
The MLR rules also discriminate against high-deductible health
plans, which are especially popular among small businesses with slim
profit margins. These businesses want to offer health insurance to
their workers but often cannot afford the generous plans that larger
companies offer. Health Savings Accounts (HSAs) and other consumer-
directed plans allow companies to provide an affordable alternative to
their workers. HSAs provide consumers with a spending account to pay
for routine health care expenses as well as good catastrophic coverage
to cover major costs.
However, the MLR regulations only include in the medical cost ratio
those payments made directly by insurers toward medical expenses.
Health care costs paid by individuals from their spending accounts
don't qualify, making it hard for these plans to meet the 80 percent
MLR test. In other words, HHS rules mean that if an individual pays
directly for a health care service to meet the deductible, the
expenditure does not count toward the MLR ratio, even though the full
amount is actually a payment for medical services.
As of January, 2013 about 15.5 million people were covered by HSA
plans. The average deductible for small group HSA plans ranged from
$2,820 to $2,957 in 2011, according to the latest figures available
from the industry group America's Health Insurance Plans. Only about 5
percent of HSA policies have claims above the deductible.\7\
Therefore, one of the tools that small businesses have found to be
most valuable in helping them offer affordable coverage is
significantly constrained by the MLR rule.
Investing in a better system
Certainly consumers want to see the great majority of their premium
dollars going to medical care. But the complex systems still being
developed to implement the ACA require a major investment in new
technology, both on the part of government and health plans.
Because of the serious problems with healthcare.gov and with many
state websites, health plans received inaccurate information about
enrollees and were forced to complete applications manually. This
process was time consuming and extremely costly. In addition, the
``back end'' of the website to process information for payment is not
yet built and when it is, it will require companies to build new
interfaces to connect with the exchange computers--again adding to
administrative cost. No one wants this, but it is a necessary
investment for the system to work. There are also administrative costs
associated with the detailed reporting required of the companies to
comply with the MLR.
In addition, the final MLR rules released on December 2, 2011,
rejected insurers' requests that the health expenditure side of the MLR
equation include anti-fraud efforts. That means the new MLR rules
constrain the ability of health plans to fight fraud because that
spending now must count toward their administrative expenses. If health
plans spend too much protecting policyholders from fraud, the plans
will be penalized and forced to send rebates to the policyholders. This
has the unfortunate result that health insurance companies actually
have a disincentive to fight fraud and protect policyholders' premium
dollars.
The National Association of Insurance Commissioners also had
petitioned HHS to exclude broker fees from the administrative portion
of the calculation. That request also was rejected by HHS regulators.
This means agents and brokers, many of whom function as valued outside
human resources departments for many small and medium-sized employers,
will have trouble getting compensated for their work. The brokers help
individuals and employers to find the policies that meet their needs,
negotiate terms, benefits, and premium costs with insurers, and then
help navigate the claims process for the client. With limited
commissions, individuals and small businesses will not have access to
these services and will have to fend for themselves.
The National Association of Insurance and Financial Advisers said
it was disappointed that the final regulations did not permit insurers
to exclude agent and broker fees from administrative expenses.\8\
Transparency
A shared goal of health reform is to promote transparency. Several
insurers are developing a collaborative effort to provide consumers
with more transparent information about prices. For example, Aetna,
Humana, and UnitedHealth are working with a new nonprofit research
organization called the Health Care Cost Institute to develop and
provide consumers ``free access to an online tool that will offer
consumers the most comprehensive information about the price and
quality of health care services.'' Other health plans could soon join
Aetna, Humana and UnitedHealth in the effort.
Many companies also are working hard on delivery system reform and
investing in initiatives to improve the quality of care, but
establishing these initiatives requires an upfront investment that must
come out of their administrative expense allocation, affecting their
MLR calculation. The ACA regulations, however, are very restrictive in
what is allowed for these developmental costs to be excluded from the
MLR, and this impedes their incentive to innovate.
Given the right incentives and more flexibility to respond to
consumer demands, the industry could develop new consumer-friendly
initiatives to increase quality and transparency. Giving consumers more
choices, transparency in costs and benefits, and the ability to select
from among meaningfully different health plans are keys to developing a
more responsive system.
Conclusion
While we certainly share the goal of protecting consumers to assure
that they get better value in health care and health coverage, I am
concerned that provisions of the ACA actually work against that goal.
Higher taxes and fees on health insurance are passed along to consumers
in the form of higher premiums. A lack of competition among insurers in
states means there is little incentive for hospitals and other
providers to negotiate lower rates, again driving up the cost of
premiums. The ACA has the unintended result of interfering with one of
the health insurance options that has been popular with small business
by not counting spending on medical care from Health Savings Accounts
as medical expenditures for purposes of the MLR calculation. And other
provisions also produce unintended consequences, such as giving health
insurers less incentive to fight fraud and making it more difficult for
insurers and brokers to be there to assist individuals and small
businesses with insurance decisions and claims.
I believe the ACA must be modified going forward. I look forward to
the opportunity to work with you on the shared goal of getting
consumers the best value for their health care dollars. Thank you for
the opportunity to testify today, and I look forward to your questions.
Appendix
Health plans have left markets \9\
Health insurance carriers began leaving markets soon after the ACA
was enacted. They are leaving for a variety of reasons. Some companies
decided that they could not viably compete in the exchanges, others
were overburdened with onerous state regulations, and others left the
health insurance market because of concerns about new costs and
regulations.
If there are fewer insurance companies offering coverage, consumers
and employers are limited in their choices. This also means they are
limited in their options to shop among competing plans to find the one
that offers the best value for the best price. In addition, the
insurance carriers themselves have less negotiating power with
providers if there are fewer insurers in a market.
The end result is that there is less competition in the health
insurance market in many states and that means higher costs for
consumers.
Here is a list that we compiled in 2011 as examples of carriers
leaving the private health insurance market.
In New York, Empire BlueCross BlueShield said it will drop in the
spring of 2012 health insurance plans covering about 20,000 businesses
in the state. Mark Wagar, president and CEO of Empire, said that the
company will eliminate seven of the 13 group plans it currently offers
to businesses that have two to 50 employees. The move is expected to
have a great and potentially ``catastrophic'' impact on small
businesses in New York, according to James L. Newhouse, president of
Newhouse Financial and Insurance Brokers in Rye Brook, NY.\10\ This
loss of competition inevitably will lead to higher prices and fewer
choices for businesses and their employees.
In Colorado, World Insurance Company/American Republic Insurance
Company announced in October 2011 that it is leaving the individual
market, citing the company's inability to comply with insurance
regulations.\11\ Also in Colorado, Aetna will stop selling new health
insurance to small groups in the state and is moving existing clients
off its plans this year, affecting 1,200 companies and 5,200 employees
and their dependents.\12\ Aetna also has pulled out of Colorado's
individual market because of concerns about its ability to compete
there, dropping 22,000 members.\13\ It also has dropped out of the
small-group market in Michigan and several other states.
In Indiana, nearly 10 percent of the state's health insurance
carriers have withdrawn from the market because they are unable to
comply with the Federal medical loss ratio requirement. Indiana was
hoping to bring the companies back by asking the Department of Health
and Human Services for a waiver from the rule, but Washington refused
in late November 2011 to grant the waiver.
In Iowa, 13 plans have left the health insurance market since June
of 2010, citing regulatory concerns.\14\
In New Mexico, four insurers--National Health Insurance, Aetna,
John Alden, and Principle--stopped offering insurance to individuals or
to small businesses--drying up the market and driving out
competition.\15\
In Virginia, shortly after the health law was enacted in 2010, a
new Virginia-based company, nHealth, announced it was closing its
doors, saying that the regulatory burdens posed by the health law made
it impossible to gain investor support to continue operating.\16\
The American Enterprise Group announced in October 2011 that it
would stop offering non-group health insurance in more than 20
states.\17\ As a result, 35,000 people will lose the health coverage
they have now. The company cited regulatory burdens, including the
medical loss ratio requirements, in explaining its decision to leave
the markets. This means less competition in these 20 states, resulting
in higher prices for consumers in many cases.
Principal Financial Group, based in Iowa, announced in 2010 that it
would stop selling health insurance, impacting 840,000 people who
receive their insurance through employers served by the company. The
company assessed its ability to compete in the new environment created
by the ACA and concluded its best course was to stop selling health
insurance policies.\18\
Another 42,000 employees of small and midsize employers learned in
January 2011 they were losing their health coverage with Guardian Life
Insurance Co. of America. The company announced it was leaving the
group medical insurance market (and it had reached an agreement with
UnitedHealthcare to renew coverage for Guardian clients).\19\ Guardian
began withdrawing from the medical insurance market in specific states
more than a decade ago, and says it would be leaving the market with or
without the ACA.
Cigna announced that it is no longer offering health insurance
coverage to small businesses in 16 states and the District of Columbia,
California, Connecticut, Florida, Georgia, Hawaii, Illinois, Kansas,
Missouri, New Hampshire, New York, North Carolina, Ohio, Pennsylvania,
South Carolina, Texas, Virginia, and Washington, D.C.\20\
These announcements that carriers are leaving markets accelerates a
trend that the American Medical Association says leaves four out of
five metropolitan areas in the United States without a competitive
health insurance market.\21\ The report found that in about half of the
metropolitan markets, at least one health insurer had a commercial
market share of 50 percent or more. In 24 states, the two largest
health insurers had a combined commercial market share of 70 percent or
more.
This is a negative and destructive trend, leaving fewer carriers to
serve these markets and giving small businesses and the insurance
agents who serve them less leverage to negotiate better benefits and
lower rates among competing companies.
Endnotes
\1\ ``Report to the Congress,'' Commission on Long Term Care,
September 30, 2013, http://ltccommission.lmp01.lucidus.net/wp-content/
uploads/2013/12/Commission-on-Long-Term-Care
-Final-Report-9-26-13.pdf.
\2\ ``Competition in the Healthcare Marketplace,'' Hearing before
the Subcommittee on Consumer Protection, Product Safety, and Insurance
of the Committee on Commerce, Science, and Transportation, United
States Senate, One Hundred Eleventh, First Session, July 16, 2009,
http://www.gpo.gov/fdsys/pkg/CHRG-111shrg54498/pdf/CHRG-
111shrg54498.pdf.
\3\ ``Drivers of 2015 Health Insurance Premium Changes,'' American
Academy of Actuaries, May 2014, http://actuary.org/files/
2015_Premium_Drivers_FINAL_051414.pdf.
\4\ ``PPACA Health Insurer Annual Fee Guidance Issued,'' Towers
Watson, March 2013, http://www.towerswatson.com/en-US/Insights/
Newsletters/Americas/health-care-reform-bulletin/2013
/PPACA-Health-Insurer-Annual-Fee-Guidance-Issued.
\5\ Letter from Joint Committee on Taxation to Senator Jon Kyl,
June 3, 2011, http://www.ahipcoverage.com/wp-content/uploads/2011/11/
Premium-Tax-JCT-Letter-to-Kyl-060311-2
.pdf.
\6\ Eduardo Porter, ``One Reason Health Insurance Premiums Vary So
Much,'' The New York Times, May 15, 2014, http://www.nytimes.com/2014/
05/16/upshot/why-health-insurance-premiums-vary-so-much.html.
\7\ David Hogberg, ``ObamaCare Rule May Bar HSAs, Low-Cost Health
Plans,'' Investor's Business Daily, December 7, 2011, http://
news.investors.com/Article/594079/201112071853/obama
care-rule-hits-hsa-high-deductible-plans.htm.
\8\ ``NAIFA President Robert Miller Comments on HHS Final MLR
Rule,'' National Association of Insurance and Financial Advisors,
December 2, 2011, www.naifablog.com/2011/12/hhs-final-mlr-rule.html.
\9\ Grace-Marie Turner, ``Testimony before the U.S. House of
Representatives Committee on Small Business Subcommittee on
Investigations, Oversight and Regulations, Hearing on New Medical Loss
Ratios: Increasing Health Care Value or Just Eliminating Jobs?''
December 15, 2011, http://www.galen.org/assets/
Turner_MLR_Testimony.pdf.
\10\ John Golden, ``Insurer to drop small-business health plans,''
Westfair Online, November 11, 2011, http://westfaironline.com/2011/
17248-insurer-to-drop-small-business-health-plans/.
\11\ Letter from American Enterprise Group Inc. to Indiana
Insurance Commissioner Steve Robertson, October 20, 2011, http://
cciio.cms.gov/programs/marketreforms/mlr/states/indiana/
in_american_enterprise_letter.pdf.
\12\ Michael Booth, ``Aetna to drop small groups in Colorado,'' The
Denver Post, September 29, 2010, www.denverpost.com/business/
ci_16199735.
\13\ ``Aetna Drops Individuals in Colorado,'' United Press
International, February 1, 2011, www.upi.com/Business_News/2011/02/01/
Aetna-drops-individuals-in-Colorado/UPI-5825129
6591876/.
\14\ Adam Belz, ``Iowa insurer exits some individual health
policies,'' The Des Moines Register, October 20, 2011.
\15\ Trip Jennings, ``Health insurance companies drop NM policies
for individuals, small groups,'' The New Mexico Independent, October
26, 2010, http://newmexicoindependent.com/65802/health-insurance-
companies-drop-nm-policies-for-individuals-small-groups.
\16\ James A. Slabaugh, nHealth letter to nHealth agents, June 2,
2010, www.richmond
bizsense.com/images/nhealthletter.pdf.
\17\ Adam Belz, ``Iowa insurer exits some individual health
policies,'' The Des Moines Register, October 20, 2011.
\18\ Reed Abelson, ``Insurer Cuts Health Plan as New Law Takes
Hold,'' The New York Times, September 30, 2010, www.nytimes.com/2010/
10/01/health/policy/01insure.html.
\19\ Jerry Geisel, ``Guardian to Exit Group Medical Insurance
Market,'' Business Insurance, January 27, 2011,
www.businessinsurance.com/article/20110127/BENEFITS02/110129919.
\20\ Cigna Corporation, ``Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended
December 31, 2010,'' www.cigna.com/about_us/investor_relations/
sec_filings/4Q2010/cigna10k20101231.html.
\21\ David W. Emmons, Ph.D., Josee R. Guardado, Ph.D., and Carol K.
Kane, Ph.D., Competition in Health Insurance: A Comprehensive Study of
U.S. Markets, 2011 Update, American Medical Association, https://
catalog.ama-assn.org/Catalog/product/product_detail.jsp?productId=prod
1940016.
The Chairman. Thank you very, very much. Let me just start
by asking Wendell Potter, you raised an interesting point. And
if one looks across the scope of the Affordable Care Act, there
are adjustments that have been made. There are adjustments that
need to be made.
But I am struck by a dichotomy. On the one hand, you are
saying that the medical loss ratio may have the effect of
reducing the ability of insurance companies to back innovation
or do innovation, whatever. And on the other hand, as Wendell
has said and as I also believe, that the reception on Wall
Street for insurance companies has been more positive even than
it was before the medical loss ratio came in.
How does one work with those two arguments?
Mr. Potter. Well, thank you, Senator. You are exactly
correct. Since the law was passed, health insurers have done
quite well financially.
The Chairman. But she is making a point, though.
Mr. Potter. I am sorry?
The Chairman. She is saying, and you can speak for
yourself, Ms. Turner, she is saying that innovation is being
discouraged or potentially could be discouraged.
Mr. Potter. But I do not think that is the case, Senator. I
think innovation will continue to take place. You have to keep
in mind that there is still a very competitive marketplace
there, and companies have to be---- have to answer to their
major customers. Most of the big insurance companies have
corporate customers that demand innovation, that demand that
they spend resources on fraud and abuse activities.
On that score in particular, I know that big companies in
years past would spend enormous amounts of money on fraud and
abuse detection technology. I remember during my years at
Cigna, my staff disseminated a press release about the money
that Cigna had invested with IBM on its fraud and abuse
management system.
And insurers will always be spending money on that because
it will be demanded by their customers that they do.
That will not go away. And much of the investment already
has been made, and it is important that they continue, and they
will continue that.
In other ways, their profits have continued to go up. Their
revenues continue to go up partly, and, in fact, significantly,
because of the Affordable Care Act they are getting more
revenues that they are able to convert to profits. And they are
paying their executives very generously. In fact, the CEO of
Aetna, according to the proxies, just within the last few weeks
was paid $30 million. The increases are continuing to go up.
Part of this can be addressed by just reallocation of some
of the resources on the administrative side. When I was at
Cigna, for example, we had--we spent a quarter of a million
dollars for a meeting on a single day for a few hours for an
investor in New York. So there is a lot of money that is not
being spent prudently.
And those are premium dollars, to the money can be
reallocated, as we are seeing that already happening. They are
reallocating some resources. Even the for-profits are realizing
that they can indeed meet the minimum standards of the medical
loss ratio and operate quite well, thank you. Thank you,
Senator.
The Chairman. OK. Thank you. Let me go onto Senator Thune.
Senator Thune. Thank you, Mr. Chairman. And, Ms. Turner, in
my statement, I quoted a couple of letters from constituents I
had received about Obamacare. And I think, as I said, outside
of Washington you hear these concerns where people are
experiencing higher premiums, higher deductibles, canceled
coverages, and that sort of thing, which is, I think,
compounded by an expectation that there were going to be lower
premiums in many cases.
And I am wondering maybe if you could share your thoughts
about those price increases, and perhaps put into perspective
whether or not the benefit that they derive from the MLR
provision is exceeded by the cost of these other increases that
are occurring with regard to deductibles, and premiums, and
that sort of thing. Could you put that into context?
Ms. Turner. Well, thank you, Senator. I have an example in
my testimony about the health insurance tax costing the average
family $350 to $400 a year. I do worry that that one tax alone
counteracts much more than the savings that a family might get
from their--that most families would receive from their medical
loss ratio rebates.
But there are so many other provisions in the law that are
driving up the costs of premiums. I think all of us have been
hearing many complaints from consumers about the fact that the
mandated benefits package is so rich. Yes, we never know what
health crisis we are going to face, but many people feel that
the benefits that they are paying are far outside what they
need and would use. And they also feel that the deductibles are
too high. Also having preventative care be a so-called ``free
benefit'' means that the cost of that care must be built into
the premium itself.
So there are a lot of provisions of this law that keep
consumers from being able to make their own choices about what
kind of health insurance policy works for them and what kind of
policy they can afford. And I also believe that if consumers
had more choices in a less-constrained market, that would put
pressure on the insurance industry to make sure that they do
provide value.
Senator Thune. Professor Hall, there is a lot of interest
in Congress in preventing fraud in Medicare and Medicaid. And
the government is seeking to move beyond what is referred to as
pay-and-chase model of recouping fraudulent claims after the
fact. In fact, our colleague, Senator Nelson, just introduced a
bipartisan bill to improve Medicare's fraud prevention.
And the question I have with regard to that as it pertains
to the MLR rules, which allow fraud recovery expenses to be
treated as medical claims, so there is effectively a
disincentive for insurers to invest in fraud prevention
activities, which concerns me as some fraud obviously affects
patient care.
So could you discuss how the current rule helps or hurts
fraud prevention?
Mr. Hall. Excellent question, Senator. I have not studied
the nuances of that in great detail. I do know that the general
spending on fraud is only a fraction of a percent, so whatever
effect the rule has, the fraud issue is just a very small
sliver of the total pie.
I do believe that the issue was given very thorough
consideration, not only by HHS, but also by NAIC. And with a
lot of these sort of issues of definition and line drawing that
had to be confronted, I think one thing the rule brought to
light was just good data about what is happening, and a really
sort of thoughtful consideration from all viewpoints as to what
the best resolution would be.
So I do not if it is the perfect resolution, but I do think
that the issue is, as you noted, to treat fraud recovery in a
more favorable way, but perhaps fraud investigation as an
administrative cost is--I do not know if it is a compromise,
but it says there is a line and we define what is on which side
of the line.
And within that, there is broad leeway for insurers to do
what they think is best in their best interests and their
policyholders' interests. To say that you can spend 15 or 20
percent of the premium dollars on administrative costs leaves
an awful lot of room to decide how much of that should go
toward sales, toward profits, and toward fraud recovery.
Senator Thune. Ms. Turner, would you want to add anything
to that? It seems, to me at least, it is better to stop fraud
when it occurs rather than to attempt to recoup money that has
already been appropriately paid. I mean, does that not
ultimately benefit patients?
Ms. Turner. Absolutely. And I think that when you do look
at the incentives, if a company is paying out a dollar that is
not actually for legitimate medical care, if it just pays the
dollar, then it counts as a medical expenditure even it is not
appropriate. But if they go after the dollar and try to get it
back, then the cost of detecting the inappropriate billing
counts against their administrative expenses. So I do think
that the incentives really do work at cross purposes.
And one of the things that really constrains companies is
figuring out how to do this juggling act with all of the other
costs of regulatory compliance, taxes, setting up networks, and
getting physicians and hospitals enrolled in their plans. They
just may not have the investment capacity as Mr. Potter
indicated they did before the medical loss rule went into
effect.
Senator Thune. Mr. Chairman, my time is up.
The Chairman. Thank you very much. Senator Johnson?
STATEMENT OF HON. RON JOHNSON,
U.S. SENATOR FROM WISCONSIN
Senator Johnson. Thank you, Mr. Chairman. Yes, I will be
the first to admit here that almost everything here in
government is well intentioned, but there are some very serious
negative unintended consequences.
According to the Manhattan Institute for Policy Research,
in the State of Wisconsin, a 27-year-old male after the
Affordable Care Act, their premiums now are 124 percent higher
than they were than pre-patient protection Affordable Care Act.
A 27-year-old female is experiencing 77.6 percent higher
premiums. So that is certainly part of the collateral damage
that we are seeing as I am getting e-mails, as Senator Thune
talked about.
Just a couple of quotes from real people telling the truth,
not telling lies. ``You need to understand how cheated we feel.
This is not right. I cannot afford this.'' By the way, that
individual's premium went from $550 per month to almost $1,600
per month. ``Please help. Sir, I'm begging for your help. I'm
very feeling very upset and stressed.'' That came from a couple
with cancer. ``The law is hurting us. Be our voice. I guess we
are collateral damage. We are scared.''
These are statements from e-mails, hundreds that we have
received from real Americans, from real Wisconsinites. And I
realize there are plenty of people who are also being
advantaged by the Affordable Care Act, but it is because their
care is being subsidized either through higher premiums or
direct subsidies from government that are going to be paid for
our kids and grandkids because, you know, we are still running
deficits.
Mr. Potter, you used the word ``excess profits.'' Can you
define ``excess profits?'' What is an acceptable level of
profit in a commercial enterprise?
Mr. Potter. I do not think there is an acceptable level of
profits. I think it depends on what your--you might have an
opinion and----
Senator Johnson. Well, do you think profit is OK because, I
mean--do you expect people to engage in commercial activity? Do
you expect people to put their capital at risk and not ever
have any chance for making a profit?
Mr. Potter. Well, Senator, keep in mind in this country we
still have many, many non-profit health insurance companies. We
did for many years, and they worked quite well. And so, there
are some companies that have decided that they want to be in
this business to make money. That is their ultimate objective.
Then you have another insurance companies that that is not
their sole objective.
Senator Johnson. I understand, but you actually have a
concept that somebody can make too much money, but you are not
willing to say what that would be.
Mr. Potter. Sir, I do not think that is what I intended to
say at all.
Senator Johnson. There is a chart on page 11 of the
majority report, a study apparently done by the Health--what is
it, the American Health Insurance Plans. And apparently this
was a group that tried to quantify how much money was spent and
in what areas of healthcare. Apparently it was inaccurate it
seems like from the majority's standpoint. But what they showed
was about a 3 percent profit rate. Was that pretty much your
experience when you were working in the healthcare industry?
Mr. Potter. No. You can get that number when you add in the
non-profit health insurance companies to the equation. And I
know America's Health Insurance Plans quite well from having
been in the industry for quite a long time.
Senator Johnson. So I am asking you, what would be the
average profit rate for a for-profit insurance company?
Mr. Potter. It varies. It can be five, six, seven percent,
and that could be significant. You could also look at the
return on equity, which is also pretty high. But let me look at
it from this perspective.
Senator Johnson. I just want to try and drill down some
numbers. So you are talking after-tax profit rate somewhere,
five, six, 7 percent, and you are probably thinking that is
excessive.
Mr. Potter. I think it is pretty significant. You have to
keep in mind what these companies have done in the past to make
sure that they are earning that. They refuse to----
Senator Johnson. I am running out of time. I need to go
to----
The Chairman. I will give you more time, but let him answer
the question.
Senator Johnson. You will give me more time?
Mr. Potter. Yes, for many years, insurance companies
engaged in practices that enabled them make whatever profits
they made, such as refusing to sell coverage to people at all
because of preexisting conditions who are charging them so much
that they could not afford to buy coverage.
It is why, Senator, we had about 50 million people who
could not get coverage. And, yes, there are some people now who
are probably paying more for their coverage, but before the
Affordable Care Act, there were many millions more who could
not afford coverage.
Senator Johnson. You are not--again, I have a line of
questioning, and you are not answering the question. I want to
go to, I guess it was Professor Hall. I think you said that the
rebates totaled $1.6 billion?
Mr. Hall. Yes, Senator.
Senator Johnson. Ms. Turner you were talking about that the
fees, the insurance fees totaled $8 billion to $14 billion.
Ms. Turner. We are focused here today on the medical loss
ratio. But the average consumers are not looking at this law in
a silo. They are looking at their overall cost experience. And
if their premiums are going up because of so many other
provisions of the law, then their own experience is that their
health insurance is costing them a lot more.
Senator Johnson. Yes. I just want to bring that into
perspective. So rebates are $1.6 billion, but the government is
collecting $8 to $14 billion from those exact same insurance
companies.
Ms. Turner. In the same year.
Mr. Potter. Do we have the same timeframe?
Ms. Turner. Yes. Well, it is basically--it is about $8
billion, I think, in the first year for the health insurance
tax alone. That does not count the medical device tax, or the
drug tax, or others that I did not quantify in my testimony.
But, yes, just that one tax is several times more than the
medical loss ratio savings.
Senator Johnson. If you could indulge me one further
question. I come from the private sector, so I actually have a
great deal of respect for the power and quite actually the
brutality of financial competition. And from my standpoint, in
running a business, an after-tax profit of five percent is not
particularly a really high profit business.
So my question is, if these are excess profits or we have
not delivered good value to customers, where is the breakdown
in the marketplace? Why is that? Because truthfully when you
have a lot of competitors, they are fighting for business, and
with a 5 percent after-tax profit rate, that to me seems like
there is a fair amount of competition. So where was the
breakdown? Could it be because we had state markets and limited
competition between States? What drove that?
Ms. Turner. Are you asking me, Senator?
Senator Johnson. Sorry. Whoever would like to answer, I am
fine with that.
Ms. Turner. Absolutely. State regulation has really impeded
competition, and, in fact, has driven out many companies. I
have a list in my testimony of companies across the country
that basically have left the health insurance market, and a lot
of them have left because the rules and regulations are
becoming so onerous. Many are moving into other types of
insurance and are leaving the health insurance business
altogether.
So it is rules and regulation. It is the lack of
competition. It is the difficulty and the expense of putting
together networks to make sure that plans can provide services
and that people have access to physicians and hospitals, all
while still trying to keep their premiums low. It's very
difficult.
Mr. Hall. And if I could give my response as well, I think
with respect to competition and this rule, I think it is a more
nuanced story in a sense that for the most part, the 80/20 rule
confirmed what the markets were giving us. It pretty much was
set according to the prevailing medical loss ratios, and that
is why there has not been a major dislocation. To the extent
that if some companies were below that level, perhaps there
just was not good information or there were pockets of the
market that were not as competitive as they could be.
With respect to profits, you know, typically you think five
percent is an OK profit, but you have to understand that a lot
of what the premium is, is giving money to the insurers that
they then pay back to my doctors. And so, if you pay 5 percent
to your bank to hold your money and give it back to you later
or to your mutual fund, you would say that was outrageous. So I
am not saying the insurance company is the same as that, but it
is somewhat different than selling, you know, a commodity that
has to be manufactured with a lot of risk. It falls somewhere
in between.
And so, the general consensus is a two to three percent
profit is sufficient to be financially healthy in the insurance
industry.
The Chairman. Thank you, Senator. Senator Scott?
STATEMENT OF HON. TIM SCOTT,
U.S. SENATOR FROM SOUTH CAROLINA
Senator Scott. Thank you, sir. I would say to Mr. Hall's
comments and directly to Senator Johnson's comments, it
questions the whole notion of trying to figure out how much
profit is enough profit, and for someone to say they can tell
you what it is, they cannot, number one. Number two, having
spent a couple of years in the insurance industry on the
property and casualty side, the reality of it is that the two,
or three, or four, or five, or six, or seven percent profit
that you see can be eliminated by any catastrophic occurrence
that occurs.
The challenge with health insurance is a little different
than the property and casualty business because the reality of
it is that based on the adverse risk selection, you find
yourselves in harm's way. And so, I think we have learned, and
what we will continue to learn over the next several years, is
a new definition of ``adverse risk selection.'' And companies
are going to have to adjust their premiums in order to satisfy
this thirst for us to have mandatory health insurance on
everyone.
Said differently, the unintended consequences are that you
will see that your premiums are increasing, your deductibles
are increasing, your out-of-pocket expenses are increasing. The
only things that are not really increasing are the number of
doctors in your network. So if you are looking for in-network
doctors consistently throughout the exchanges, you will find
that there are fewer, not more. If you are looking for
hospitals to go to, fewer, not more.
So the real challenge is if you have a specialist or a need
for a specialist, visit some of the cancer centers and see
which ones are in and which ones are out. Look at the teaching
hospitals and see which ones are in, see which ones are out.
The other aspect that I would suggest is that when you look
at the premiums paid versus the claims paid, the real benefit
for the insurance industry has been their ability to create a
return on the investment based on how they use those premiums
before they pay them out. So ultimately, the actual profit is
generated by equity position and other assets that provides
real opportunity for them to continue to provide the coverages
that are necessary for us to see people insured.
Mr. Potter suggested that there were 45 or 50 million
Americans who did not have health insurance because they were
unable to get it because of preexisting conditions and other
areas as--other issues as well. The fact of the matter
unfortunately is by the year 2024, according to the non-
partisan CBO--we like to call it non-partisan when we like what
they have to say, although I think they lean a little left--
suggests that we will see 31 million Americans still without
insurance.
So what we have said is that we are going to spend between
$1.5 trillion to upwards of $2 trillion to provide health
insurance to about 10 or 12 more million Americans at a cost
that is a couple of trillion dollars higher and perhaps destroy
the best delivery system of health insurance we have ever seen
in the world.
With that said, having sold health insurance back in the
90s before I woke up and realized, hey, I can do something else
besides this because this is getting complicated. Now I thank
God that I had the good fortune to get into the property and
casualty business because people who have to do this for a
living every day with this new MLR are being run out of
business. And what I mean by that, Ms. Turner, is that agents
are no longer en vogue.
So we have consumers making decisions on their own or with
the help of a navigator. Now, I am sure that a navigator, being
defined as 40 hours of good training, perhaps knows a little
bit about health insurance, but not much more than the
consumer. And that is one of the great challenges that we face.
So the MLR's unintended consequence is the elimination of a
professional that comes into your house, sits down with your
family, understands your health situation and challenges, and
makes good decisions with you. That is unfortunately being
eliminated every single day going forward.
I would suggest that what Mr. Thune has said previously and
what I am receiving from my constituents, Mr. Turner, some of
my constituents from Clover, South Carolina are seeing their
premiums go from $330 a month to $525 a month.
I do like the notion that we are going to celebrate the
concept of a rebate. This rebate comes in the form of cash
coming home until they realize that even if they applied their
rebate to their higher premiums, the rebates pales in
comparison to what they had before there was a concept called
the MLR, which is unfortunate.
I just cannot figure out how we justify these higher rates
by suggesting that we have more people insured. It is just
inconsistent with the facts that we will see play out, I
believe, overall. We may see more people with an insurance
card, i.e., having access to health insurance or health care.
But when the capacity because of the doctors and the hospitals
and the specialists are being constricted, the definition of
access may have to change.
So I am seeing my time is running out because the lights
are changing colors, but let me ask Ms. Turner one question. It
seems to me that an insurer may actually have a perverse
incentive to get an MLR rate that is acceptable, but may drive
costs later. So my question is this. It seems to me that an
insurer who has actually some success in bending the cost curve
in the delivery system of medical care will have a greater
challenge in meeting their MLR. If an insurer manages to spend
less on medical care through negotiating better rates with
providers, that would be exactly what we want, of course. But
at that point, the ratio of medical expenses to the company's
fixed administrative costs is suddenly off. So it seems that
the MLR actually rewards less efficient delivery of medical
care. Thoughts?
Ms. Turner. That is absolutely right. And, of course, the
converse is true as well. If a company winds up paying moure
out in medical costs, that means their base can be higher for
their medical loss ratio administrative calculation. But the
consumer is certainly disadvantaged. So absolutely, Senator.
And to your other points, emergency room physicians
recently released a report saying that they are seeing a
dramatic increase in the number of people showing up for care
at hospital emergency rooms even though the Affordable Care Act
was designed to make sure people did not have to go to
emergency rooms, especially for routine care.
And to your point about agents, the agents and brokers
really are like external H.R. departments for many small
businesses.
Senator Scott. Absolutely.
Ms. Turner. And they are enormously beneficial, not only in
helping people and business owners wade through the
complexities of finding the right policies, but also in helping
them when they have claims and when they have challenges. And
it is really, I think, very detrimental to consumers when
agents are not available to help them and to help small
business owners who now have to navigate this complex space on
their own.
Senator Scott. Thank you, ma'am. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Scott. There is sort of a
fascination to me of the rhythms of discussing the Affordable
Care Act. First of all, if you call it the ``Affordable Care
Act,'' that means you must be an optimist with no moorings. On
the other hand, if you call it Obamacare, you are just a good,
solid American citizen who does not like the President or
whatever.
But you see it time and time again when new legislation is
introduced, and particularly when it is far reaching beyond the
medical loss ratio, but the whole medical loss ratio and the
whole Affordable Care Act. That, you know, a while ago
everybody was spending all of their time on the computer
system, which was all botched up, and that seems to have gotten
better. You do not hear very much about that.
So then, and this is typical in so much legislation, that
if something is working, and is settled law, and is accepted by
the Nation, and people are signing up, and the exchanges are,
you know, in Oregon not working quite so well, but they are
going to go to the Federal model, are working, and people can
stay on their parents' until they are 26 years old, and getting
rid of lifetime limits, annual limits. I mean, you do not hear
Ms. Turner discussing that kind of thing or Senator Johnson
discussing that kind of thing because that does not fit a
mindset.
But it is the old business of if you want to nail
something, you read a couple of e-mails that you have gotten.
And I have never used that technique, but I do remember the
e-mails and conversations and situations that I was involved in
before the Affordable Care Act was passed and before medical
loss ratio was passed, and there were tragedies.
I mean, I remember--Ms. Turner, this may not move you, but
it moved me--a 10-year-old boy who had cancer in Charleston,
West Virginia, and he was dying from that cancer. And I met
with him and his family, and his annual limits, which then
existed, had run out. And he had--they had spent a million
dollars, and there was nothing more that would be allowed to be
spent.
And that does not exist anymore. All kinds of--preexisting
conditions was huge. Huge. And you refer to costs going up, and
Senator Johnson refers to costs going up, and then I am
thinking about what I am reading in the newspapers and reading
in professional papers is that overall the cost of healthcare
is going down. Now, at some point, if the cost of healthcare is
going down, but the costs are going up to individuals broadly
on such a scale, then the first could not possibly be true.
So again, it is the question of if you want to pierce
something or to put in a bad light, pull out an e-mail or use
some example because you may be--that e-mail is probably
correct. It is from a real person expressing, you know, real
frustrations. But again, I go back to my world, which is not as
wealthy as Wisconsin, but southern West Virginia or West
Virginia as a whole, and I look at Ms. Fernandez there and
listening to her story. And that is what I have heard. That is
what I have heard. I mean, I did not get into the business of--
and Al Franken actually helped on this a lot.
I did not get into the business of the medical loss ratio,
you know, which was sort of everybody was excited about the
public option, and Wendell and I have discussed this before.
The public option was a terrific idea, I guess, but the point
is we could not get any votes for it in the Finance Committee.
So you can keep on saying, like all the TV reporters did, this
is a terrific idea, and the press was saying, and if you are
not for medical--for the public option, you cannot be serious
about healthcare reform. Well, that might have been true except
the fact we could not get any votes for it to get it out of the
Finance Committee much less get it on the floor of the Senate.
So then we came to the medical loss ratio, which seemed to
make sense, and on a bipartisan basis was passed. And I think
it is very important to take a long view at what is going on
here, and I will be able to dig up some e-mails that make part
of the Affordable Care Act that does not look good, especially
from people who have their mind that they do not want it to
work because they do not like the President. Maybe he is the
wrong color, something of that sort. I have seen a lot of that,
and I know a lot of that to be true. It is not something you
are meant to talk about in public, but it is something I am
talking about in public because that is very true.
People associate a piece of legislation. Their leader in
the Senate has committed at the beginning of the President's
term to block every piece of legislation that the President
puts forward. And they have done that with this exception and a
few other exceptions. And I find that--I find that disingenuous
behavior.
So, Mr. Potter, if the insurance company--I mean, maybe the
ideas are mixed on what are excessive profits, but if, as you
and Mr. Hall said, if there are profits, and if people are
signing up now in very exciting numbers, and if the polls show
that people overwhelmingly want this healthcare system to work
as opposed to the last healthcare system. I mean, if we wanted
to have a discussion about the last healthcare system, we would
be here for 4 hours listening to me.
But, you know, it is a--the prospect of finding something
that works for people where they have choice, where they have--
make their own decisions, there are going to be--there will be
some consequences. I mean, in some cases there will be fewer
doctors and that is why there is a lot of money in the
Affordable Care Act to specifically encourage primary care
doctors to get into the business. That is why I think there is
$10 billion in the Affordable Care Act to open up a thousand
more rural health clinics so that people in rural areas can get
to rural health clinics.
I mean, to me the concept of trying to nickel and dime and
use convenient political arguments against a very, very major
piece of legislation, which happily is working and will be
working better all the time to the extent that in 10 years Ms.
Turner is going to be telling herself, why was I complaining?
Why was I complaining? It did not seem good at the time, but it
seems everywhere I look people are getting satisfied.
Will we make more tweaks to the law? Will Sylvia Mathews
Burwell, if confirmed by the Senate, will she continue to make
some more tweaks? She will have to because anything this big
has to be tweaked because there always improvements that can be
made. But to me, the basic factor--I have obviously run over my
time--no, actually my time setter who works for me has just
suddenly I have 2 minutes and 50 seconds, Senator Johnson. It
is good to be Chair.
Senator Johnson. You are the Chairman.
The Chairman. That is it is working and if rather than
waiting for the clouds to deliver thunderbolts of lightning and
doom and misery, actually things are seeming to be turning
around, then realistically you do not ask for perfection on
every day in every way. You assume there are some consequences.
There will be some irregularities. Things will vary from state
to state, and you will always begin to come up with examples.
I mean, this example of waste, fraud, and abuse I have
heard on every single subject that has ever existed. And the
fact is, as Mr. Hall said, I think it is actually less than
one-half of 1 percent.
And that is pretty amazing. So I would just raise a protest
in the way in America that we approach problems. If something
is done by the other side, so to speak, then attack, attack. Do
not think about what Ms. Fernandez has been through. And I am
saying do think about what Ms. Fernandez has been through, and
that is the point. That is why a bill had to be changed. That
is why the existing healthcare system where insurance companies
were making off like bandits and cutting people off----
The whole concept of rescission. I do not know if Ms.
Turner knows what rescission means, but it is where somebody is
paying their premiums and they have a disease which the
insurance company decides is going to be very expensive. And
so, the law says no more rescission. End of rescission, and
that is absolutely fantastic news for hundreds of thousands of
people. But you do not hear that talked about that very much
because the word ``rescission'' is not understood very much.
But I daresay that Mr. Fernandez understands it real well, and
I daresay that Mr. Ralston understands it.
So again, it is the question of when you approach major
legislation that affects people's lives, is it important to be
fair, and is it important to--for me to understand that
everything that is not working as well as it should, but it is
a good bill, and it is working, and people are signing on very
fast. And, you know, West Virginia amazed me by instead of
going to 133 percent of Medicaid expansion went to 138 percent.
And then I looked at--I am going to sign a letter with some
other Senators to all the Governors who refuse to get Medicaid
into the Medicaid expansion because I think it is
unconscionable.
I have not heard any talk about that around here. I mean,
in Texas I think it is several million people are without
health insurance because of that fact. Well, why do I not hear
about that? That is what Medicaid expansion is for, and all
that means is that 20 Governors have to change their minds and
stiffen their political spines, and do what is right. Virginia
struggling is struggling with now. We will see what happens on
that.
But I do think that when you are dealing with major
legislation, it is important to be fair, and it is important to
see the bad and the good, to balance them, and to decide
whether you are going to try to move this cart forward or you
are going to try and stop it. And I am not favor of trying to
stop it. Nobody is going to stop it. It is the law, and it will
work.
I do not think that was a question, but I enjoyed myself.
But do you understand that, Wendell?
Mr. Potter. I do, Senator.
The Chairman. It is so frustrating. When you live through
what healthcare was in southern West Virginia and all of West
Virginia, what people did not have, people were terrified of
going to a doctor. People could not get to a doctor. And when I
went to West Virginia as a Vista volunteer as an untrained
social worker in 1964, it was only because there was a rural
healthcare facility right across the stream in another county
that we could go to. And, yes, there were plenty of people in
the waiting room then, and there are more people now. And part
of the reason is because people want healthcare. When people
want healthcare, that is a good sign. It means they are going
to be aggressive about it and look to exchanges and have a
positive attitude, which I think is what pulls us through in
America. Anybody want to respond to that?
Mr. Potter. Senator, if I might start, I think--I
appreciate what you were saying because so often we have lost
sight of what the world was like before the passage of the
Affordable Care Act and why we needed to have it in the first
place. We forget that between 1998 and 2008, the average
premium for a family went up 131 percent, and deductibles were
going up as well, too. And the percentage of the premium that
workers were paying was increasing as well, too. That is not a
statistic that is cited very often these days. But we have
forgotten what it was like and why so many people were priced
out of the market before the Affordable Care Act.
Since my testimony 5 years ago, I was inundated with phone
calls and e-mails from people who thought that I might be able
to help them deal with problems with their insurance companies.
And until the law was passed, there was really nothing that I
could do. I could not help people get coverage if they had had
a preexisting condition. I could not help people who were
deemed uninsurable until the law passed.
And as you may know, Senator, one of the reasons that I
decided to do what I did was going to a health fair not too far
from West Virginia in Wise County, Virginia. I was down there
to visit family. And I went to this healthcare exposition that
was being held at a county fairgrounds, and I saw people who
could have been my relatives, who could have been people I grew
up with, could have been me if my circumstances had not been
slightly different.
And they were standing in these long, long lines waiting to
get care that was being provided, Senator, in barns and animal
stalls by doctors and nurses who were volunteering their time.
And it was just stunning to me.
I realize at that moment that what I was doing for a career
was making it necessary for people that I could have grown up
with and could have been related to get care that way. That is
what had happened. That is what had happened to our so-called
healthcare system. And that was just one community.
And the people who were putting that exposition together,
they call them expositions, have been doing this all over the
country because it is not just a problem in Wise County,
Virginia. It is everywhere in this country. I left my job
because I could not, in good conscience, continue doing that.
And, Senator, also insurance companies make a lot of money.
They really do. And when you are talking about percentages, it
may seem to be relatively small. But just the five largest
health insurers last year made about $12 billion profits, just
five companies. We have got about 1,300 insurance companies.
They make a ton of money.
The taxes on--the so-called new tax on insurers, they do
not have to pass that along. They have a lot of resources. They
do not have to. They just decided they want to do that, and
they can do that. They conceivably could absorb those and still
make considerable money.
Also they are getting a lot of new customers. There was no
incentive before the Affordable Care Act for these companies to
reform this system themselves. It had to be from the outside.
We have seen that for many years because of the way their
practices were going, they were excluding more and more people.
And we had an aging population. We were going to see more and
more people falling into the ranks of the uninsured because of
preexisting conditions. They do not have to pass that along.
And also, underwriting costs. They do not have to spend as
much money on some things that they spent enormous amounts of
money on in the past, such as underwriting that can be
reallocated to and are being reallocated in certain ways to
make sure that premiums are reasonable.
I have talked to many people, Senator, who have told me
that their premiums are much less. And a lot of people, in
fact, a majority of people who are buying coverage through the
exchanges are paying less than they thought they would. They
are getting subsidies that are helping them. So a lot of people
are better off. Some people have told me, Senator, that they
are alive today and they are confident of it because of the
Affordable Care Act, and I believe it.
The Chairman. Senator Johnson, do you want to close her out
here?
Senator Johnson. Oh, I absolutely do, Mr. Chairman. It was
regrettable, and I would say it was offensive--seeing as I am
the only one in the room really talking about opposition, that
you would play the race card, that you would say opposition to
Obamacare necessarily must stream from some inherent racism.
Very offensive.
But listen, my opposition to my healthcare has nothing to
do with the race of President Obama. My opposition to this
healthcare law, by the way, which was passed on a 100 percent
totally partisan basis. You talk about a major piece of
legislation. The way it used to work in this country is
something this major would normally be done in a bipartisan
fashion where you would actually accommodate the other person's
views. That is not what happened with this law.
The Chairman. Senator, there was no accommodation? There
was no accommodation?
Senator Johnson. It was passed on a purely partisan basis.
But my objection to the healthcare law is, first of all, if you
do not know my story, my daughter was saved by this healthcare
system that was supposedly so terrible. My daughter was born
with a congenital heart defect. Her aorta and pulmonary artery
were reversed, first day of life. One of those greedy doctors
that President Obama said would take out a set of tonsils or
cutoff a foot because of the fee schedule, came in at 1:30 in
the morning and saved her life. Eight months later when her
heart was the size of a small plum and after 7 hours of open
heart surgery, a team of dedicated professionals in a fabulous
healthcare system that we have rebaffled the upper chamber of
her heart. She's now 31 years old. Now, she's a nurse
practitioner.
The reason my story has a happy ending is because my wife
and I had the freedom, and that is the problem with Obamacare.
It is the greatest assault on our freedom in my lifetime. We
had the freedom to call up Boston Children's and Chicago
Children's. And by the way, we just had a standard healthcare
plan. I had the same healthcare that every one of the people
that worked with me had. Nothing special about it. We were able
to access those miracles because of our healthcare system.
And we did not have to totally remake America's healthcare
system to take care and provide the social safety net that we
all agree on. I agree with President Obama, no American should
go bankrupt because they get ill, but we did not have to pass
this monstrosity. We could have done it using high risk pools.
Now, in the State of Wisconsin, those are obsolete. They are
gone. The couple with cancer I was talking about, they could
afford their high risk pool insurance. Not anymore. They lost
it. It is gone because of Obamacare.
So sure, there are some people that have been advantaged by
Obamacare. I admitted that. But they are advantaged by it
because taxpayers are subsidizing them. And by the way, not
really taxpayers. The debt on our kids and grandkids will pay
for those subsidies. Or they are being subsidized by 27-year-
old men and women in Wisconsin who are paying 124 percent
higher premiums. That is why some people are advantaged because
somebody else is being disadvantaged.
I objected to Obamacare because of the loss of freedom. I
objected to it because I understand that when you actually pay
for it by reducing payments to providers, you are going to have
fewer providers. You are going to have less access.
You will have rationing. The medical device tax, what has
that resulted in? We are not really investing in developing
medical devices for manufacturers anymore because it is too
expensive. A 2.3 percent tax on gross sales, those companies
are moving overseas. They will stop innovating. We will not see
the types of miracles that we could have had if we had not
destroyed that type of innovation.
So I did not object to this because of the race of the
President. I objected to this because it is an assault on our
freedom. And, Mr. Chairman, I have to admit, I have a great
deal of respect for you, but I am the only one in the room, and
I found it very offensive that you would basically imply that I
am a racist because I opposed this healthcare law. That is
outrageous.
And again, there are so many problems with--Ms. Turner, I
actually have a question for you because Senator Scott brought
it up. I have heard, and I do not have it--I am not going to
quote a figure because I get PolitiFact checked all the time. I
have heard of an alarming number of insurance agents that will
lose their jobs because of this. Have you heard--do you know of
any studies about that?
Ms. Turner. I do not believe there have been any studies
yet, but in California, for example, there have some reports in
the Los Angeles Times and elsewhere about how hard agents
worked to help enroll people in the coverage, and yet it is
questionable whether or not they are going to be able to be
paid. And many of them, their office costs are fixed, too. They
may wind up not being able to continue to support these new
enrolees.
And I do want to echo what you said about the overall goal
of the law. Senator I believe in the goals of getting coverage
to everybody and protecting freedom in this wonderful society
we live is an absolutely important goal. But the question is,
how do we do it?
Senator Johnson. And let me just conclude on how this thing
was sold to the American people. It was a consumer fraud, a
massive consumer fraud. This President looked at the American
people and told them a boldfaced lie. If you like your health
plan, you can keep it, period. If you like your doctor, you can
keep it, period. Because of this wonderful law, the average
cost of a family plan was supposed to decline by $2,500. It
hasn't. It has increased by $2,500.
So the e-mails I am getting, and by the way, they are not,
as Senator Harry Reid said, coming from a bunch of liars. These
are coming from real Wisconsinites. They are writing about 150
to one. Yes, we are getting e-mails from people that have been
advantaged by Obamacare. But 150 for every one that has been
advantaged has been disadvantaged, and those are real people,
and those are real stories.
So again, thank you, Mr. Chairman.
The Chairman. I can only conclude that what you in your
heart deeply want for the American people is to go back to the
healthcare system that we had and to have a totally free
enterprise, let the insurance----
Senator Johnson. No, you are assuming the wrong thing, Mr.
Chairman.
The Chairman. Well, I am saying----
Senator Johnson. You have implied that I am a racist.
The Chairman. I have not implied that you are a racist.
Senator Johnson. Now, you are saying you want me to go back
to a failed healthcare system. You are just incorrect.
The Chairman. That is very, very silly on your part. You
are evidently satisfied with a lot of people not having health
insurance so long as you----
Senator Johnson. I am not. Quit making those assumptions.
Quit saying I am satisfied with that. I am not. There was
another way of doing this. I am happy to discuss it with you. I
would have been happy to engage in the debate and pass a good
healthcare law. As a matter of fact, I am the one pushing a
bill, If You Like Your Healthcare Plan, You Can Keep It Act. I
do not have any Democratic sponsors on that.
I am also working with Republican colleagues on Preserving
Freedom of Choice in Healthcare to preserve freedom of choice
in healthcare. What a concept, huh? So, no, please do not
assume--do not make implications of what I am thinking and what
I would really support. You have no idea.
The Chairman. I actually do, and, you know, God help you.
Senator Johnson. No, Senator, God help you for implying I
am a racist because I opposed this healthcare----
The Chairman. I did not imply that you are a racist.
Senator Johnson. Let us play back the tape.
The Chairman. We can do that, but we are not going to. You
have lost temper. I understand that.
Senator Johnson. I was called a racist. I think most people
would----
The Chairman. You were not called a racist.
Senator Johnson. I would think most people would lose their
temper, Mr. Chairman.
The Chairman. You were not called a racist. However, you
have done everything you can to block progress. The law is the
law. Every Republican voted against it against one or two. I
think--did Olympia Snowe vote for it? She wanted to, but I
think she was told that if she did she would lose her position
on the Commerce Committee, so she did not.
It is a very partisan thing, and I regret that, but that is
what the Republicans have decided to do, to block everything
the President puts forward. And that is not very helpful to
America.
I want to thank all four of you for your patience in
listening to strong feelings, and what was important is that
you had strong feelings. And I am particularly looking at you,
Ms. Fernandez, because I think you are a classic story and a
classic case. And you are not involved in all the folderol that
we have gotten involved in here.
Ms. Fernandez. May I say something?
The Chairman. Please.
Ms. Fernandez. Rationing was there before. My healthcare
and my family's healthcare has been rationed from the moment my
son was born with a preexisting condition. There has not been
freedom of choice for our healthcare because not all policies
were available to us. Once my son was diagnosed, or not
actually diagnosed. They just said he has got some sort of
condition, the healthcare policies we were eligible for or we
could find that covered him, specifically excluded all muscular
and skeletal issues.
That is not health insurance. There is no way that is
health insurance. If he broke a leg, it would not have been
covered. It is ridiculous to talk about health insurance only
from the perspective of health insurance company profits.
People do not buy health insurance in order to ensure that
health insurance companies get huge profits. They buy health
insurance to help them cover their medical expenses, both
expected and unexpected.
That is not a minor thing. It is a major thing. And people
who like the Affordable Care Act often call it Obamacare
because it is kind of a friendly sounding name, too. So it is
not just pejorative. It is often affirming, and I think that is
important.
The problem with health insurance the way it has been is
that it was purely a gamble, and it was rigged. And I am tired
of a rigged system. I am tired of money being made, huge
profits off of misfortune, and that is what this has been for
me. My family has struggled for years to try to make sure that
we are all taken care of, and I have avoided having necessary
medical testing purely because the cost of it was too high, and
it would not be covered for health insurance. And also, I was
terrified that if something was found, that my insurance was
dropped. The whole system was rigged.
When you are self-employed, when your insurance is bought
on the individual market, the whole system was flawed, and
deeply flawed. I think the Affordable Care Act is a step in the
right direction. I do not think it goes far enough to protect
consumers, but I think it is way better than the system we had
before. And I am not an insurance person. I am not somebody who
studies things from all sorts of different perspectives how
profits should be or anything like that. I am a person. I am a
family member. I am a business owner. I am somebody who has
tried for years to navigate a system, and this was before the
Affordable Care Act, that simply did not work. And it did not
work for a lot of people.
So thank you for letting me speak.
The Chairman. Sort of a good place to declare the hearing
adjourned. Thank you for that.
[Whereupon, at 4:32 p.m., the hearing was adjourned.]
A P P E N D I X
The following two articles were submitted for the record by Senator
Thune:
Whistleblower: ACA contractor in Wentzville pays employees to do
nothing
by KMOV.com Staff
KMOV.com
Posted on May 12, 2014 at 10:44 PM
Updated Thursday, May 15 at 1:13 PM
(KMOV.com)--Employees at an Affordable Care Act processing center
in Wentzville with a contract worth $1.2 billion are getting paid to do
nothing but sit at their computers, a whistleblower tells News 4.
The facility is operated by Serco, which is owned by a British
company awarded $1.2 billion partially to hire workers to handle paper
applications for coverage under the new healthcare law.
A worker tells News 4 weeks can pass without employees receiving
even a single application to process. Employees reportedly spend their
days staring at their computers.
``They're told to sit at their computers and hit the refresh button
every 10 minutes, no more than every 10 minutes,'' the employee said.
``They're monitored, to hopefully look for an application.''
The Centers for Medicaid and Medicare services told News 4 in a
statement that ``Serco is committed to making sure Federal funds are
spent appropriately, and the number of Serco staff is reviewed on a
regular basis.''
______
Politico--May 11, 2014 07:04 AM EDT
$474M for 4 failed Obamacare exchanges
By: Jennifer Haberkorn and Kyle Cheney
Nearly half a billion dollars in Federal money has been spent
developing four state Obamacare exchanges that are now in shambles--and
the final price tag for salvaging them may go sharply higher.
Each of the states--Massachusetts, Oregon, Nevada and Maryland--
embraced Obamacare, and each underperformed. All have come under
scathing criticism and now face months of uncertainty as they rush to
rebuild their systems or transition to the Federal exchange.
The Federal Government is caught between writing still more
exorbitant checks to give them a second chance at creating viable
exchanges of their own or, for a lesser although not inexpensive sum,
adding still more states to HealthCare.gov. The Federal system is
already serving 36 states, far more than originally anticipated.
As for the contractors involved, which have borne most of the blame
for the exchange debacles, a few continue to insist that fixes are
possible. Others are braced for possible legal action or waiting to
hear if now-tainted contracts will be terminated.
The $474 million spent by these four states includes the cost that
officials have publicly detailed to date. It climbs further if states
like Minnesota and Hawaii, which have suffered similarly dysfunctional
exchanges, are added.
Their totals are just a fraction of the $4.698 billion that the
nonpartisan Kaiser Family Foundation calculates the Federal government
has approved for states since 2011 to help them determine whether to
create their own exchanges and to assist in doing so. Still, the amount
of money that now appears wasted is prompting calls for far greater
accountability.
Where has that funding left the four most troubled states?
Nevada, for one, is still trying to figure out its future. Oregon
has decided to switch to HealthCare.gov. Maryland wants to fix its own
exchange, maybe by incorporating what worked in Connecticut.
Massachusetts actually wants to do both--build a portal from scratch
while planning a move to the Federal exchange as a backup.
Massachusetts' dual-track approach could require more than $120
million on top of the $170 million it already has been awarded. That
cost is nearly twice as much as if the state were to simply bail on its
Connector, but officials seem to be banking in part on the Obama
administration's greater interest in helping the Massachusetts
exchange--the once-pioneering model for Obamacare--survive.
Josh Archambault, a senior fellow with the right-leaning Foundation
for Government Accountability, argued that the state's efforts to
salvage its exchange are just a face-saving exercise.
``Instead of a quixotic sprint to rebuild the whole site in five
months, state officials should instead pivot quickly to utilize the
Federal exchange, saving taxpayers tens of millions of dollars in the
process,'' he said.
State officials have warned that most of what is left of their
initial Federal award may be needed to end their contract with CGI, the
vendor that built the Connector. They acknowledged Thursday they have
no guarantees of additional Federal funding.
``You have two choices,'' Rep. Stephen Lynch (D-Mass.) said last
week. ``One is to expend even greater amounts of money on something
that had limited success thus far or going to the Federal exchange. . .
. There's simplicity in that, and I think that may be where some within
the commonwealth would like to go.''
By contrast, Oregon has already opted to give up on its website and
use HealthCare.gov. The colossal failure of Cover Oregon--which so far
has cost $248 million in Federal money--has prompted a probe by the
General Accountability Office. The state's congressional delegation is
taking keen interest.
``The next step is the Federal investigation . . . and I'm anxious
to get those results,'' said Democratic Sen. Ron Wyden.
But Democratic Rep. Peter DeFazio has also called for litigation
against Oracle, the vendor that was supposed to set up the site. What
it has been paid is ``ill-gotten gain on the part of Oracle, and we
should sue to get the taxpayer money back,'' DeFazio said Thursday.
Only 14 states and the District of Columbia developed their own
health insurance exchanges for individuals to buy coverage under
Obamacare, a far different scenario than the law's authors envisioned.
Nevada, the only Republican-led state to run an individual exchange
this year, expects to decide on the future of its struggling Nevada
Health Link in the next several weeks. An outside report concluded that
salvaging the major flaws in the exchange would be a huge feat. The
system has spent $51 million of the approximately $90 million in
Federal grants that were authorized, according to a spokesman.
``The report seems overwhelming to me,'' Lynn Etkins, Vice
Chairwoman of the Health Link board, said last week. ``And I really am
not hearing anything that all of these issues are going to be resolved
well before open enrollment so testing can be done.''
Senate Majority Leader Harry Reid blames Xerox, which constructed
the exchange, for the many problems his state's system has had.
``They're the ones that should be held accountable,'' he said Tuesday.
The company, however, maintains that a fix is possible. ``While the
list may, in fact, look daunting . . . when you get under the covers
and start to look at the outputs in terms of the progress that we've
made over the last several months, I am actually less daunted,'' David
Hamilton, a Xerox official working with the state, told Etkins and
other board members at their recent meeting.
Maryland is a state that aspired to be another national model but
ended up spending $118 million in Federal funds on a fatally crippled
exchange. It is in the process of trying to transition to the
technology used by Connecticut's system. It's still unclear whether the
move will meet Federal approval. If not, Maryland would default to
HealthCare.gov.
``There's got to be oversight on how public monies are spent,''
said Sen. Ben Cardin (D-Md.). ``But I'm not trying to say who is
responsible yet. I've heard the state many times talk about the private
contractors--so they've got to be part of the mix.''
Rep. John Delaney (D-Md.) is a strong supporter of Obamacare but
has been calling on the state to go to the Federal exchange since
December. He says the move to the Connecticut exchange is a ``political
cover-up'' and charges that officials have not been transparent about
Maryland Health Connection or its repairs.
``If you stumble, you have a particular obligation to be upfront,''
Delaney said.
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