Reporters largely missed the point of a Commonwealth Fund study released this week, that looked at consumer savings under Obamacare's 80-20 rule, the rule making insurance companies spend at least 80% of your premiums on health care, not overhead.
The authors started with a fact we already knew -- that health insurance companies had to pay $1.1 billion in rebates for missing the MLR requirement in 2011 -- and that big shiny number distracted the news media. But the authors zeroed in on a much more important fact. Insurance companies successfully reduced administrative costs by $1.184 billion in 2011, but they used those savings to increase profits instead of passing them on to consumers.
Clearly the 80-20 rule isn't working to contain profits and hold down premiums, especially in states that don't have tough regulation of insurance premiums.
California Insurance Commissioner Dave Jones launched an audit this week of the state's largest health insurers to determine if consumers paid too much when insurers were actually saving money and boosting profits. The Commonwealth study found that in California, insurance companies increased profits for individual plans by $88 per member or about $90 million, even though administrative costs went down and every major insurance company imposed rate increases.
These results are more evidence that states need the ability to say no to rate manipulation. Otherwise, insurance companies will keep premiums artificially high to make sure profit numbers stay high too. As we warned HHS Secretary Sebelius more than two years ago:
"In the same way that a Hollywood agent who gets a 20 percent cut of an actor’s salary has an incentive to seek the highest salary, insurers will have incentive to increase health care costs and raise premiums so that their 15 percent or 20 percent cut is a larger dollar amount."
As Jones said when announcing the audit:
"I have long pushed for the authority to reject excessive health insurance rate increases and this study provides further evidence of why this change in the law is long overdue in California. Health insurers and HMOs continue to impose double-digit premium increases each year and are making larger profits when selling to individuals and families even during these tough economic times."
Californians will finally have the chance to stop them, by voting at the next ballot on an initiative measure to require health insurance companies to publicly justify rate increases and get approval before they take effect. Learn more at justifyrates.org