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Obamacare Controls Prices: McCarty

Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.
The Florida Channel
Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.

Florida Insurance Commissioner Kevin McCarty says there's no need for the state to regulate health premiums because the Affordable Care Act has a rule that keeps them under control. 

In a discussion with the Orlando Sentinel editorial board, McCarty said the ACA contains a "self-regulator" that limits the amount of the premium that companies can keep for administrative expenses and profits. If insurers spend too little of the premium on health care, he said, they have to return it to the customers who overpaid -- individuals and employers.

A consumer advocacy group, asked by Health News Florida to respond to McCarty's remarks, said they are misleading.

"Rate-setting is still needed to keep insurers from being inefficient and wasteful," said Greg Mellowe, policy director for Florida CHAIN. 

Under the ACA, insurers have to spend at least 85 percent of the premium for a large group policy or 80 percent for an individual or small-group policy on health needs of members. The rest can go for administrative expenses, marketing and profits. This limit, in insurance-speak, is called the "medical-loss ratio."

The medical-loss ratio was one of the first parts of the law to go into effect after it passed in 2010, and has applied to premiums from 2011 on.

Insurers who missed the mark last year had to rebate$54 million to Florida customersthis month; the rebates mailed out in August 2012 to Floridians amounted to $183 million. The fact that it dropped may indicate that insurers are learning they must moderate premiums to keep from having to pay rebates, federal health officials say.

McCarty made the remark about the law having a self-regulator while brushing off concerns about the Florida Legislature taking away the state's power to regulate insurance premium increases this year and next year. A number of Florida publications have expressed concern about that.

In his remarks published online Wednesday by the Orlando Sentinel, he said:

"Florida enjoys a robust, competitive marketplace, and under ACA, there's a mandatory imposition of a medical loss ratio of 85 percent. What that means is 85 percent of the premium taken in has to go for the delivery of medical services.

"If they overcharge, and they don't meet that threshold, they have to return that premium to policyholders, or that's given to other companies in reinsurance for those whose rates were inadequate.

"So, built into the system there's a self-regulator, if you will."

He was asked why his own public statements have forecast big rate increases under Obamacare, even as a number of other states have reported average rates for 2014 as stable or even declining.  McCarty said there are two reasons: In his forecast, he was talking about just the individual market, not the overall market, he said. And he didn't account for the subsidies, he said.

"Studies by the American Academy of Actuaries demonstrated that in all probability, there would be a 25 (percent) to 30 percent increase for our state to go from individually underwritten (policies) to a guarantee-issue state," he said.

In an individually underwritten system, companies can turn away anyone who looks risky; in a guarantee-issue state, they must accept all comers.

Only about 5 percent of those who are insured in Florida buy their own policies, according to past studies; most take coverage provided and subsidized by an employer or the government. That 5 percent figure will likely go up as of Jan. 1, however, since many of those who have been excluded from buying insurance will have access to it through a federally run online  marketplace.

Some forecasters have said as many as 2 million of Florida's 3.8 million uninsured will be able to get coverage through the marketplace, although probably  not all at once. When new health-insurance benefits are introduced, it typically takes time to get the information out to those who qualify and help them understand how to register.

Astudy by the Kaiser Family Foundationreleased Wednesday shows a nationwide average of the average subsidies that individuals who shop on the  marketplace  may qualify for. Kaiser Health Newsoffers a summary.

On the subject of rate-regulation, Mellowe of Florida CHAIN said there are three reasons why the states need to be involved in it:

"First, rate-setting occurs up front, while the MLR (medical-loss ratio) requirement is applied after the fact. Insurers shouldn’t be allowed to collect and hold hundreds of dollars or more for a year, especially when the fact that its rates were excessive should have been identified up front.

"Second, and more importantly, although the MLR requirement is a critical accountability tool, it cannot replace (and was never intended to replace) the rate review process. In particular, the MLR rebate calculation happens in the aggregate – it’s based on total premiums and claims.

"By contrast, rate-setting addresses the question of what everyone’s rates will be and it evaluates whether the factors used to set those rates were reasonable and appropriate. The Commissioner knows this full well.

"Finally, the MLR requirement prevents insurers from misdirecting an excessive portion of total premiums paid to administration and profit.  Rate-setting is still needed to keep insurers from being inefficient and wasteful.  If an insurer charges an average $400 premium in the small group market, the MLR requirement simply means that the insurer must spend at least $320 of that on direct care and quality improvement, in the aggregate (or issue rebates.) But without rate-setting, there’s no way of knowing whether the insurer could have charged lower premiums and still met the needs of its policyholders."

Carol Gentry, founder and special correspondent of Health News Florida, has four decades of experience covering health finance and policy, with an emphasis on consumer education and protection.