Stating the Obvious

Writing at Huffington Post, Dan Karr explains why the the PPACA’s repeal or replacement is inevitable:

Political discussion aside, The Affordable Care Act (ACA) will fail for business reasons. Whether the ultimate result is the law getting repealed or modified, change is necessary to have a viable and vibrant health insurance industry that drives cost reduction and improved customer service.

The fundamental reason the ACA will fail is because it mandates a minimum Medical Loss Ratio (MLR). MLR is the percentage of premiums paid out to cover health care expenses. When this law came into effect, many American’s thought mandating MLR was good because it guaranteed a minimum level insurance companies would pay to cover health care costs. However, the unintended consequences are having the opposite effect.

The problems associated with mandating MLR are two-fold: 1) incentivizing the insurance industry to become less efficient; 2) contributing to the elimination of new insurers entering the market and increasing the level of competition.

I find this observation pretty ironic:

Health care costs increasing at more than two times the rate of increase in the Consumer Price Index is a problem the U.S. has suffered for decades. The ACA clearly did not cause this problem, however, the problem will worsen under any law that mandates MLR. The solution lies in pricing and cost transparency, encouraging competition and rewarding efficiency.

Ironic because many of us have been screaming about this for decades and the PPACA was structured as it was under the false assumption that covering more people would reduce costs. I also think that his solution is a phantasm. I think that effective solutions require providers to produce more health rather than incentivizing them to produce more care.

8 comments… add one
  • PD Shaw Link

    While I would support repealing the minimum MLR as having little positive value, I’m not convinced that it has that much negative effect either.

    The MLR requirements do not apply to self-insurance, which continues to increase as a percentage of the employer-provided insurance market (as of 2013 58.2% of workers were in self-insured plans). These are attractive because of relatively lower costs. They are not known for pricing structures that incentivize fraud-prevention or cost controls, and in this way are probably little different than MLR requirements. If you feel that a certain level of administrative costs are necessary to control overall healthcare costs, then removing the MLR requirements may not do much if most workers are in self-insurance plans that minimize administrative costs anyway. It may make self-insurance plans more attractive.

  • The MLR requirements do not apply to self-insurance,

    something I’ve been harping on for a long time. In reality except for the small group plan there isn’t much of a healthcare insurance business nowadays. The individual market falls under the PPACA and most of the rest is self-insurance.

    That’s one of the ironies. When they’re involved at all with self-insurers the “insurance” companies participate as administrators and are generally paid based on a percentage of claims. As claims rise so do administration fees. A more perverse situation could hardly be imagined.

  • michael reynolds Link

    When we were first debating Obamacare I said it would either work, or it wouldn’t, but what mattered was that health insurance had been moved permanently to the Government “In” box. Once it had made that shift from “Whose problem?” to, “Government’s problem!” whatever changes or adjustments needed to be made would eventually be made.

    You’ll notice that repealing Obamacare has become ‘repealing and replacing.’ I’ve heard actual conservative Republicans talk about single payer or Medicare for all, and absolutely no one is talking about bringing back pre-existing conditions or killing the older child coverage or lifetime caps, or going back to the system in place prior to O’Care. Go to Marco Rubio’s position page and you’ll see after the usual ‘free market’ drivel, support not only on pre-existing conditions, but promises to ensure access for the poor. The things that matter to people are now baked in, seen as rights.

  • Guarneri Link

    Heh. So non-health care retail sales are cannibalized due to falling disposable incomes, and we ultimately transfer another latent bankrupt program to government, meaning taxpayers. Like public pensions, SS, Medicare. The only thing left is the default on these promises, or huge tax increases, which means less disposable income……cannibalizing….

  • steve Link

    So let me get this straight. New markets were opened by the ACA. Most states had only one or two dominant insurers. New companies entered and some of them failed. Shouldn’t we have been more worried if none failed? Those who advocate for selling insurance across state lines think it will lower prices. Meh. It is difficult to enter new markets in the health insurance field. Those new companies will always have trouble competing. A health insurance guy here is complaining that some health insurance companies lost money. His answer is to eliminate MLR constraints. I hope the level of self interest here is obvious.


  • Ben Wolf Link


    The only path Republicans will accept is a voucher system doomed to a faster, harder fall than Obamacare. With an ideologically driven dummy like Ryan as Speaker it’s a given. This is, after all, the guy who proposes eliminating all government spending other than the military.

  • michael reynolds Link


    Then we’d better win not just the WH, but the Senate as well. And shave down the GOP majority in the House.

    But I’m not so sure you’re right. Republicans have already swallowed gay marriage. They’ll swallow a more moderate health reform as well.

  • jan Link

    …”Republicans have already swallowed gay marriage. They’ll swallow a more moderate health reform as well.”

    There is the “law of diminishing returns” to consider, in that the more BS and burdensome bureaucracy an ideological platform shoves down people’s throats, the less of it they will be able to swallow before nausea sets in and it’s violently “thrown up.”

Leave a Comment