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Texas Health Insurance Not Exempt From Overhead Spending Limits

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affordable texas health insuranceHere’s some news on the Texas health insurance front. Texas had applied for a waiver that would exclude it from the federal government’s law that imposes limits on overhead spending by health insurers. The law in question applies to the Medical Loss Ratio and was instated as part of ObamaCare.

Basically, the federal law mandates that health insurance companies “must spend a minimum of 80 percent of their revenue on payments for policyholders’ health care or improvement to their health coverage plans.” This might sound okay on the surface – more money going toward individual’s health care, and less money going toward executive salaries and overhead. But in reality, “overhead” also includes necessary and important items like employee training, education and liaising with doctor’s to better understand issues related to health. So by mandating an 80/20 medical loss ratio, the government is effectually limiting a health insurance carrier’s ability to perform actions that positively affect not only the company, but the consumer.

The consequence for spending more than 20 percent on such costs is a requirement to provide customers with rebates beginning in 2012. Texas was denied its waiver request because, according to officials from the U.S. Department of Health and Human Services, the state was unable to “prove that there would be destabilization of their insurance marketplace if it complied with this new regulation.”

As a result, it’s possible that Texas health insurance companies will be forced to pay out rebates worth $476 million to policyholders over the next three years.

Again, this sounds positive for consumers. But we’re not convinced that federal mandates are in the long term best interest of the people. By limiting health insurance carriers’ overhead costs, we can expect to see good programs like education and privacy protection reduced, since the law kills a carrier’s incentive to invest in such programs. The short sighted law requires health insurance companies to make business decisions based on federal regulations, rather than what’s best for consumers.

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