Aaron Carroll, who just recently joined Austin Frakt as a contributor to the Incidental Economist, has a post that reiterates the importance of pushing back against insurers’ attempts to water down the regulations in the new health care law. As Carroll demonstrates, if regulators don’t put their foot down on the most obvious regulatory loopholes (like the new MLR standards), they’ll only contribute to the industry’s ongoing attempt to circumvent regulations and attract a higher profit.
In the 1990s, private HMOs began competing for beneficiaries with traditional Medicare. Under the rules, the private HMO operated on a community rating basis and could not discriminate against applicants or cherry pick the healthiest individuals. Theoretically, the two pools should have had similar risk profiles, but when researchers looked closer, they found that the private HMO always managed to steal way healthier (read: more profitable) beneficiaries from the Medicare program and push them back into traditional Medicare once they became sick (read: less profitable):
What did the researchers find? People who wound up joining the (private) HMOs used 66% less care before joining than those who stayed in the (public) Medicare group. Somehow the private insurance HMOs figured out a way to get the healthy people to jump ship out of the another plan into theirs!
Not only that, but people who left the (private) HMOs and went back to the (public) Medicare used 180% more care after leaving than the people who stayed. Somehow the private insurance HMOs figured out a way to convince the sicker people to jump ship back to the public plans.
Carroll concludes that this research holds lessons for the exchanges: “So we had a system where plans were in an exchange like environment. Regulations prevented cherry-picking. And yet, the insurance companies figured out a way to preferentially cover healthy people. And this was competing with a giant government program.”
Indeed, “[i]nsurance companies are very, very good at what they do” and if federal regulators drop the ball on these early MLR rules or fail to give states enough resources to go up against the industry, then we may as well pronounce reform a failure. Any sign of weakness will only seen as an opportunity to ignore the intent of the law.