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Calculating the Value of Health Care

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health insurance, obamacareThe health care legislation passed earlier this year will have a variety of effects, some starting this year and others rolling out through 2014. One of the most noteworthy elements under the ObamaCare umbrella is the requirement that health insurance companies meet a specific “medical loss ratio.” This rule mandates that health insurance plans split the dollars they receive from insurance premiums into two categories. According to the Wall Street Journal:

Depending on the type of insurance coverage, 80% to 85% of premiums must be spent on either medical services or “activities that improve health care quality.” This bucket includes everything from doctor visits, hospital stays and surgery to prescription drugs and medical equipment. It also includes programs to help patients cope with chronic diseases and reminders to take prescribed medications. The remaining 15% to 20% of premiums falls into a smaller bucket of “administrative” expenses like overhead, marketing, profits, compensation and agent commissions.

The ability of the government to dictate which activities fall into which category is an indirect way to cap insurer’s profits, but more than this misuse of government power, it has frightening implications for patients as well. In order to meet federal requirements, health insurance companies will be forced to cut back on “administrative” tasks like working with doctors to reduce certain unnecessary tests, of which too many can be dangerous, and preventing fraud, which protects patients’ private information.

If crucial services like these are considered to be administrative expenses by regulators, even though they significantly improve quality of health care and lower costs, then health plans will lose their incentives to invest in and engage in these essential programs. As a result, costs will continue to rise, and the quality of health care will fall as health insurers struggle to stay afloat.

The article closes by noting: “Bureaucrats now have the power to force private health plans to make business decisions based on regulations rather than on what is best for company or customer health. This kind of governmental micromanaging of health care—seen nowhere else in our business sector—is anathema to the free market. More importantly, it endangers the lives and well-being of millions of Americans.”

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