• Mr. Mark Hall

  Professor of Law

  Wake Forest University

• Ms. Grace-Marie Turner

  President

  Galen Institute

Majority Statement

• Chairman John D. Rockefeller IV
  Read statement

  Majority Statement

  Chairman John D. Rockefeller IV

  Today’s hearing is about an Obamacare success story. It’s about a consumer protection provision in the law that has already saved American consumers billions of dollars.

  Whether you call it the “MLR law” or the “80-20 Rule,” it’s responsible for the hundreds of thousands of rebate checks American families and small businesses have been receiving from their health insurance companies for the past two years. That’s not something you see every day – an insurance company giving premium dollars back to its customers.

  I understand that there are people in this country – maybe even here in this room –who find it hard to concede that anything good has or will come from the Affordable Care Act. But I think it’s pretty clear at this point that this piece of the law is working the way we hoped it would.

  To understand why we have this law, you have to remember how the commercial health insurance market worked before we passed the ACA. It was a market whose rules were rigged against consumers. Insurers could purge sick people from their rolls, and deny coverage to people with what they called “pre-existing conditions.”

  In the old health insurance marketplace, it was very difficult for consumers to compare products and choose plans, because the insurers wouldn’t give us clear information about coverage and costs.

  The Commerce Committee’s work back in 2009 played a key role in exposing yet another problem with the health insurance market –many of the policies health insurance companies were selling to families and businesses were just not a good value.

  We used the industry’s own data to make this point. We looked at the percentage of every premium dollar health insurers were spending on health care, versus the percentage they were spending on administration, commissions, dividends, and other non-health care items. In health insurance industry jargon, this measurement is called the “medical loss ratio,” or MLR.

  What we found back in 2009 was a mixed bag. In some markets, insurers were efficiently spending 90 cents or more of each premium dollar on patient care. But in other markets – especially the market for individual health insurance – the numbers were shockingly low. Some insurance companies were pocketing as much as 50 cents of each premium dollar.

  We also found that large national insurers selling the same products across states provided consumers in some states substantially lower value for their premium dollars than in other states.

  When we talked to industry experts like Wendell Potter, we learned that the big for-profit insurance companies carefully tracked their MLRs and worked relentlessly to lower them. Their thinking was pretty simple: the less they spent on health care, the more money they had for their shareholders. It was a zero-sum game that pitted patients against profits.

  To counter this strong incentive to provide less care to their customers, we told the health insurance companies they needed to spend at least 80 cents of each premium dollar on their customers’ health care (85% in the large group market). If they spent less than 80% on patient care, they had to rebate a portion of the premium payments back to their customers.

  This wasn’t a crazy idea made up in Washington. Thirty-four states already had minimum medical loss ratio laws on their books. But because the requirements varied from state to state, health insurance companies could still sell low-value products in many markets.

  As always happens when you propose a pro-consumer reform like this, the industry predicted dire consequences. A coalition of health insurance companies, agent and broker groups, and industry-friendly insurance commissioners fought this law at every step of the process.

  I won’t take the time to detail how much time and money the opponents of the MLR law spent trying to kill it, but my staff has prepared a report on the legislative history of the MLR law, which I now ask unanimous consent to place in the record of this hearing.

  Now that the dust has settled and the data is in, it’s hard to see what all of the fuss was about. Health insurers who have not met the 80% threshold have cut rebate checks totaling almost $2 billion to their customers. That’s good news.

  The even better news is that the law has forced insurance companies to review their operations and reduce their non-health care costs. Rebate amounts are dropping as health insurance companies increase the efficiency and quality of their products. That cost-cutting process has saved consumers hundreds of millions more.

  The minimum medical loss ratio is a very simple idea, but it appears to have had a powerful, and very positive, effect on the health insurance market. Consumers are getting a better deal than they were getting 5 years ago.

  I look forward to talking about how and why it has worked in the commercial market, and whether we can apply it in other parts of our health care sector, such as Medicaid managed care.

  ###

Minority Statement

• Senator John R Thune

  Ranking Member

  U.S. Senate Committee on Commerce, Science, and Transportation
  Read statement

  Minority Statement

  Senator John R Thune

  I would like to thank you, Mr. Chairman, for holding this hearing, and our witnesses for being here today.  

  As we begin today’s hearing on one small aspect of the Affordable Care Act, I would like to underscore a quote from a constituent of mine, Dale, who wrote to me saying, “I feel the federal government has stolen over $5,000 [per year] from me.” Dale is referring to his significant premium increase, as well as a jump in his deductible, under ObamaCare. 

  Another constituent from South Dakota, Roxanne, received a quote of $400 more per month or $4,800 more per year under ObamaCare than her current health insurance plan. With two kids still to get through college, Roxanne and her husband can’t afford a total monthly health insurance payment that is more than their monthly mortgage payment. She wrote to me and said, and I quote, “Please do something about this, there has to be a better way.” 

  These are just a couple of the continued frustrations that I hear about from South Dakotans when it comes to the negative impacts of the Affordable Care Act, otherwise known as ObamaCare. Thankfully, Dale and Roxanne believe in a representative democracy, where flawed laws can be changed or repealed. So they, along with many others, have shared their stories about the damaging impacts of this law.

  The idea of the Medical Loss Ratio (MLR) provision in the Affordable Care Act, championed by the Chairman, requires insurers to spend the majority of premium dollars on efforts to improve health care quality and places a cap on administrative costs.  

  Consumers can benefit under this provision by gaining greater transparency as to how insurers spend premium dollars and, in some cases, getting a rebate from insurers that miss the MLR target. In 2012, the average rebate per family in South Dakota was $70, for the approximately 700 individuals who received a rebate – or just over $5 per month. This is also roughly the same amount as the previous year’s average rebate in my home state.

  While other states may have seen higher rebates than South Dakota, it is important to keep this issue in perspective. Approximately $500 million in MLR rebates were paid out nationwide in 2012, a figure that is likely to decline for 2013. At the same time, recent news accounts show that nearly the same amount was squandered on the failed health exchanges in just four states, and hundreds of millions have been wasted on contractors who have been paid to sit idle in ObamaCare processing centers. It's hard to see this as a net gain for consumers and taxpayers.

  I appreciate the chairman’s dedication to protecting consumers, and the MLR provision is well-intentioned. We all want quality health care and affordable insurance premiums, but I worry that the MLR provision and the health care law as a whole are having a host of negative consequences on insured individuals and the many Americans who are frustrated that promises about how the legislation was going to work have proven to be untrue.

  The intent of the MLR is to help contain spending on health insurance, which is a laudable goal, but some experts believe that the MLR could actually raise the cost of premiums and narrow the competition in the marketplace. 

  I am also very concerned that the MLR regulation put forth by HHS can undermine efforts by insurers to prevent fraud and abuse, including efforts to prevent the delivery of inappropriate or unnecessary services that may harm consumers.  

  The MLR regulation allows after-the-fact recoveries of fraudulently paid claims to be counted as medical claims, but does not give similar consideration regarding efforts to prevent or deter fraud before it occurs. Yet, prevention efforts arguably have an even more direct impact on the quality of care for patients. For example, in 2012, a doctor pleaded guilty to health care fraud for allegedly providing fewer chemotherapy drugs than the prescribed dosage to her patients. The judge in the case was appalled at how this doctor had treated vulnerable patients, yet the doctor was operating a clinic for five years before her arrest for fraud. Ironically, because of the significance of health care fraud, the government itself is in the process of trying to move beyond the traditional “pay and chase” approach to fraud, instead working to prevent fraud before it occurs. Health insurers should be incentivized to do the same.

  Other concerns that have been raised with the MLR include higher administrative costs due to regulatory compliance requirements; states not receiving needed waivers, as one size doesn’t fit all; discouraging investments that could improve health care quality and reduce costs; and reducing access to agents and brokers who can help consumers to navigate the complex health care system. And, because the standards for the MLR program are left up to HHS, the provision effectively leaves the design of health care activities up to the government, rather than leaving the decision and choice to the consumer and state insurance regulators. 

  Even if the MLR could be implemented without negative consequences, we cannot ignore the law’s larger negative impact. How do consumers benefit when the costs of other ObamaCare provisions exceed any potential benefits from the MLR? As just one example, according to a summation compiled by the House Ways and Means Committee regarding estimates from the nonpartisan Joint Committee on Taxation and the Congressional Budget Office, tax increases from ObamaCare are estimated to total $1 trillion over 10 years. Some of those costs will be passed on directly to consumers, including my constituents in South Dakota and many other Americans.

  Taken as a whole, ObamaCare continues to wreak havoc on our economy and on job creation. More and more Americans are losing their existing health care, and as a result of the employer mandate, businesses are cutting hours to reduce the number of full-time employees on their books. Ultimately, the Congressional Budget Office estimates that, due to the decline in hours worked, ObamaCare will result in losses equal to 2.5 million fewer full-time workers.  

  I want to reiterate what Roxanne wrote to me – “there has to be a better way.” Consumers should get appropriate value for their premium dollars on health insurance – and the MLR was a well-intended attempt at achieving that – but when one steps back to look at the larger picture, it’s increasingly evident that the many problematic costs and regulations associated with the health care law will almost certainly frustrate that purpose.

  Thank you again Mr. Chairman for holding this hearing, and I look forward to the testimony from our witnesses. 

Testimony

• Mr. Wendell Potter

  Analyst

  Center for Public Integrity and former health insurance executive
  Download Testimony (46.14 KB)

• Ms. Katherine Fernandez

  Houston, Texas
  Download Testimony (311.02 KB)

• Mr. Mark Hall

  Professor of Law

  Wake Forest University
  Download Testimony (209.33 KB)

• Ms. Grace-Marie Turner

  President

  Galen Institute
  Download Testimony (578.87 KB)