[Congressional Record Volume 157, Number 171 (Wednesday, November 9, 2011)]
[Senate]
[Pages S7289-S7290]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               PATIENT PROTECTION AND AFFORDABLE CARE ACT

  Mr. COBURN. Mr. President, I believe Congress should reexamine the 
federally mandated medical loss ratios in the Patient Protection and 
Affordable Care Act. Today I will outline four reasons I believe 
consumers will face increased costs, decreased choice, and reduced 
competition.
  The Patient Protection and Affordable Care Act, PPACA, included a 
provision that requires all health plans to adhere to a medical loss 
ratio, MLR, established in law. The MLR refers to the percentage of 
premium revenues for health insurance plans spent on medical claims. 
Thus, if a plan received $100 of premiums and spent $85 on medical 
claims its MLR would be 85 percent.
  Beginning no later than January 1, 2011, PPACA requires a health 
insurance issuer to provide an annual rebate to each enrollee if the 
ratio of the amount of premium revenue expended by the issuer on 
clinical claims and health quality costs, after accounting for several 
factors such as certain taxes and reinsurance, is less than 85 percent 
in the large group market and 80 percent in the small group and 
individual markets.
  Supporters of PPACA tend to herald the newly created, higher MLR 
requirement as providing ``better value'' for policyholders compared to 
a lower MLR. To the untrained ear, perhaps higher MLRs sound better 
since they force health insurance plans are required to spend a larger 
percentage of each dollar on medical claims.
  Jamie Robinson, a professor in the School of Public Health at the 
University of California at Berkley, noted that numerous organizations 
``have assailed low medical loss ratios as indicators of reduction in 
the quality of care provided to enrollees and sponsored legislation 
mandating minimum ratios.'' However, he rightly concludes that while 
``this is politically the most volatile and analytically the least 
valid use of the statistic.''
  In fact, a close examination of the data suggests there are several 
reasons to be concerned with the one-size-fits-all federally mandated 
MLRs in PPACA. Here are four key reasons why PPACA's MLRs will likely 
negatively impact American consumers and patients.
  First, insurance markets across the country threaten to destabilize. 
During the health reform debate, opponents of the Federal takeover of 
health care warned that the federally mandated MLR could endanger the 
high-quality health coverage many Americans enjoy because it could lead 
to market destabilization in some States. Under PPACA, States are 
permitted to adjust the percentage for the individual market only if 
the Secretary of Health and Human Services grants them a waiver because 
the Secretary determines that the health insurance market would 
otherwise be destabilized. Unsurprisingly, a total of 15 States have 
applied for a waiver from the MLR. This means that nearly one in three 
States has found that the MLR could destabilize their market and 
threaten consumers' coverage.
  A review of the data shows why States are concerned. According to a 
study published in The American Journal of Managed Care, the specific 
impactof the new medical loss rules on the individual health insurance 
market ``has the potential to significantly affect the functioning of 
the individual market for health insurance.'' Using data from the 
National Association of Insurance Commissioners, the study's authors 
``provided state-level estimates of the size and structure of the U.S. 
individual market from 2002 to 2009'' and then ``estimated the number 
of insurers expected to have MLRs below the legislated minimum and 
their corresponding enrollment.'' They found that in 2009, ``29 percent 
of insurer-state observations in the individual market would have [had] 
MLRs below the 80 percent minimum, corresponding to 32 percent of total 
enrollment. Nine states would have atleast one-half of their health 
insurers below the threshold.''
  The study explained the impact in ``member years,'' which requires 
some explanation. Most health insurance policies typically have a 12-
month duration, but individuals can enroll or disenroll on a monthly 
basis. As a result, much of the accounting and actuarial calculations 
that a health insurance plan makes are in member month or year terms. A 
member year is 12 member months and could be one individual or multiple 
persons. For example, if an individual is enrolled for 12 months, that 
is one member year, or if two people are enrolled for just 6 months 
each, that is one member year. The study found that ``if insurers below 
the MLR threshold exit the market, major coverage disruption could 
occur for those in poor health,'' and they ``estimated the range to be 
between 104,624 and 158,736 member-years.'' This empirical analysis 
highlights the huge disruption American consumers may face. As health 
insurers consolidate, stop offering some insurance products, or exit 
the market place altogether, Americans who like the high-quality 
private health plan they have will lose it. This effect would undermine 
the President's promise to Americans that if they like the health care 
plan they have, they could keep it.
  There is a second concern: Instead of consumers receiving ``better 
value,'' consumers face increased costs. Despite often-repeated 
arguments that federally mandated MLRs will result in ``better value'' 
for consumers, there is little substance to back up this claim. The 
assumption behind this claim is that spending more cents of a health 
care dollar directly on care is inherently better. But this may not 
necessarily be the case. University of California, Berkley, professor 
Jamie Robinson has studied the issue of MLRs closely, and he noted in 
Health Affairs that the connection between the MLR and good value is 
not as clear as some would claim. ``The medical loss ratio never was 
and never will be an indicator of clinical quality,'' he said. In fact, 
Professor Robinson explained that ``neither premiums nor expenditures 
by themselves indicate quality of care. More direct measures of quality 
are available, including patient satisfaction surveys, preventive 
services use, and severity-adjusted clinical outcomes. Although each of 
these is limited in scope, they at least shed light on quality of care. 
The medical loss ratio does not.''
  While the MLR cannot guarantee better value for consumers, it can 
lead to higher premium costs. As the Congressional Research Services 
explained,

[[Page S7290]]

the MLR provision in PPACA requires health insurance plans ``to pay 
rebates to their members if a certain percentage of their premiums are 
not spent on medical costs. This provision may provide an incentive for 
health insurance companies to reduce their compensation to and/or 
utilization of producers as they seek to reduce their administrative 
costs in relation to their medical costs.''
  In this scenario, unintended consequences are important to consider. 
For example, an insurer may increase premiums in another product to 
make up for lost revenues in one where a rebate is issued. Also 
insurers may be incentivized to scale back utilization management 
techniques as a result of the MLR requirement. Accordingly the 
underlying medical trend which drives premium costs would increase for 
everyone in the risk pool, therefore leading to higher premiums for all 
consumers who have a health plan with that company.
  Costs for consumers may also increase because of increased fraud in 
the system. Because insurance plans are economically discouraged from 
activities not directly connected to medical care, there is a perverse 
incentive to reduce efforts to police fraud such as conducting 
utilization reviews and data analysis to root out individuals who 
defraud the system. This is such a significant problem that it was 
highlighted in congressional testimony before a House subcommittee 
earlier this year. ``Given the role that health plan fraud prevention 
and detection programs have played in establishing effective models for 
public programs, improved data for law enforcement, and successful 
prevention efforts, we believe the MLR regulation's treatment of such 
programs should be reevaluated,'' said the witness. According to the 
testifying witness, the specific concern is `` the MLR regulation only 
provides a credit for fraud `recoveries'-- i.e., funds that were paid 
out to providers and then recovered under pay and chase' initiatives.'' 
This effectively discourages preventative measures:

       The MLR regulation's treatment of fraud prevention expenses 
     works at cross purposes with new government efforts to 
     emulate successful private sector programs, and it is at odds 
     with the broad recognition by leaders in the private and 
     public sectors that there is a direct link between fraud 
     prevention activities and improved health care quality and 
     outcomes.

  Ironically, this myopic focus on MLRs obscures the best tool to 
evaluate the value of a health insurance product: consumer choice. As 
Professor Robinson explained:

       The best indicator of current and expected future value in 
     a market economy is the willingness of the consumer to 
     purchase and retain the product. In health care, this 
     translates into measures of growth in enrollment and 
     revenues, adjusted for disenrollments and changes in prices. 
     Plans that are growing are offering something for which 
     purchasers are willing to vote with their dollars and 
     consumers are willing to vote with their feet.

  Let me turn to my third concern. Consumers face fewer choices, less 
competition in the marketplace. As noted previously, the MLR threatens 
to destabilize several markets by pushing some health insurance plans 
to stop offering some insurance products, or exit the market place 
altogether. The Congressional Research Service explained this more in 
detail in a memo to Congress. CRS said the MLR ``requirements of PPACA 
will place downward pressures on administrative expenses, including the 
use of insurance producers. Thus, there will be an incentive for 
insurance companies to cut back on the use of producers or reduce their 
commissions in order to rein in their administrative expenses. Some 
observers, including associations of producers, have suggested that the 
regulatory and market changes resulting from PPACA could put producers 
out of business.''
  The very allowance in PPACA for waivers from the MLR provision is a 
tacit admission the one-size-fits-all MLR approach mandated under PPACA 
is neither in the best interest of consumer choice nor competition 
among health plans in many insurance markets across the country. 
President Obama once publicly pushed for a government-run health plan 
under the auspices of more ``choice and competition,'' Unfortunately, 
the controversial health care law he signed is set to reduce choice and 
competition for millions of American consumers.
  Mr. President, finally, the new mlr mandates further the government 
takeover of health care. Much ink has been spilled about the claim that 
PPACA represents a government takeover of health care. In my view, 
there is no disputing this claim. Even before the passage of PPACA, the 
nonpartisan Congressional Research Service issued a report showing that 
60 percent of health care spending in the United States is controlled 
by State, local, and Federal governments. Now, after passage of the 
controversial health care law, the Federal Government will effectively 
regulate health insurance markets and dictate what types of health 
coverage Americans can buy--even penalizing employers and consumers who 
do not offer or purchase coverage. The law also massively expands the 
Medicaid Program--a program that began as a Federal-State partnership 
but that has evolved into a gimmick-ridden program threatening State 
budgets and too often promising patients coverage while denying them 
access to care. The law also includes hundreds of new powers for the 
Secretary of Health and Human Services and creates dozens of new 
programs that will further interfere in the practice of medicine. Yes, 
the law is a government takeover of health care.
  Interestingly, the nonpartisan Congressional Budget Office warned 
that if the MLRs in PPACA were only slightly higher, PPACA would result 
in a complete government takeover of all health insurance. In a 
December 2009 analysis, CBO warned that if the MLRS were 5 percentage 
points higher, all private insurance would become ``an essentially 
governmental program.'' In fact, this CBO analysis--publicized before 
the health care bills became law-- may be one key reason the Democrats 
refrained from pushing for a 90-percent MLR. CBO warned that if a 90-
percent MLR were adopted, ``taken together with the significant 
increase in the Federal government's role in the insurance market under 
the PPACA, such a substantial loss in flexibility would lead CBO to 
conclude that the affected segments of the health insurance market 
should be considered part of the federal budget.'' If the bills' 
authors had, in fact, included a 90-percent MLR, they would have faced 
critics waving a CBO analysis affirming the government takeover of the 
health insurance industry was complete. However, even with this 
determination, CBO appeared to admit that determining at what point a 
high MLR triggers a complete government takeover of the insurance 
industry was not entirely cut and dry. CBO said, ``Setting a precise 
minimum MLR that would trigger such a determination under the PPACA is 
difficult, because MLRs fall along a continuum.''
  Mr. President, in the end though, CBO settled on 90 percent as the 
tipping point, though, as they noted, any ``further expansion of the 
Federal Government's role in the health insurance market would make 
such insurance an essentially governmental program, so that all 
payments related to health insurance policies should be recorded as 
cash flows in the federal budget.'' In other words, this was just about 
as close as the Democrats could get without even CBO admitting it was a 
complete government takeover of the health insurance markets.

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