One of the provisions that got added to Harry Reid’s manager’s amendment at the last minute was a requirement that insurance policies sold through the exchanges have medical loss ratios of at least 80%.
In insurance jargon, the “loss ratio” is the percentage of premium dollars paid out in claims. Â The “medical loss ratio” of Â a health insurance policy is the percentage of premium dollars going out to providers, as opposed to marketing, administrative overhead, and profit. Â So the provision is Â the decisive answer to the charge that the individual mandate in the bill gives the insurers a license to steal by offering junk insurance that people would be required to buy. Â The enforcement mechanism is staightforward: Â any firm that pays out less than 80% must rebate the difference to its policyholders.
A required payout ratio has to be up there with guaranteed issue, age-adjusted community rating, and the bans on recissions and lifetime caps among the central reforms the bill will achieve. Â If the Democrats are smart, we’ll be hearing a lot about this between now and November.
(Bill Nelson of Florida, a former insurance regulator, did an excellent riff on this just before the cloture vote.)