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. The “medical loss ratio” of a health insurance policy is the percentage of premium dollars going out to providers, as opposed to marketing, administrative overhead, and profit. So the provision is 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. The enforcement mechanism is staightforward: 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. 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.)