In reporting on the new medical-loss ratio provisions in the health care law, I’ve expressed concern that the law could allow insurers to reclassify administrative costs as medical expenses, artificially inflating their ratios without improving care efficiency or quality. But over at the National Journal’s National Experts Blog, Paul Ginsburg worries that tight MLR restrictions could discourage insurers from investing in improvements like payment reform:

One of the major purposes of health insurance exchanges is to make the health insurance market for individuals and small groups more competitive. Exchanges do this by facilitating consumers’ process of gathering information about plans and making informed comparisons. In contrast, MLR regulation is designed for situations where competition is not possible and approaches more suitable to public utilities must be used. Any need for MLR regulation will clearly be lower starting in 2014 than it is today.

A second contradiction concerns innovation in the organization and delivery of care. Recognizing that we do not have the answers today about how to get care that is higher quality and less expensive, the legislation has numerous provisions designed to increase innovation in this area. Payment reforms strike me as having particularly large potential. Private insurers have a very important role to play in payment reform and many other areas of fostering improved delivery of care. But there are real risks that much of this activity could be precluded if administrative costs incurred to support reformed delivery are treated in the same way as selling costs and profits. The last thing that we would like to see is insurers deciding that the only path open to them is to do little beyond processing claims–that can lead to very high MLRs. Constraints on Medicare’s administrative budget has led to a program that is very efficient in paying claims but does little to make the delivery of care more effective.

Ginsburg is right to note that after 2014, actuarial values in the exchanges will undermine the need for MLR. MLR is designed to control insurer profits and would do very little to improve care quality. As James C. Robinson points out in this Health Affairs article, “High ratios can be achieved either through a large numerator (high medical expenditures) or through a small denominator (low insurance premiums).” In 2007, for instance, 6 of the 7 largest publicly-traded health insurers reported that their profits increased by 10%, while their medical loss ratios also went up. The same could happen in 2014. Once the exchanges are established, insurers will spend less on administrative expenses (reform will limit their ability to underwrite policies and the exchanges will streamline certain administrative tasks), and their medical-loss ratio will likely increase. This does not mean that they’re spending more money on patient care or shifting less towards profits. In fact, the law recognizes this reality and only requires insurers to maintain an 85 or 80% ratio until 2014.

As for his second concern about constraining insurers, the law creates a new category of expenses: “activities that improve health care quality.” Theoretically, if certain expenses really do help “get care that is higher quality and less expensive,” then insures should be able to convince regulators to include them in that definition (and by extension in the numerator of the MLR ratio).

The Associated Press’ Ricardo Alonso-Zaldivar has a story out today claiming that the Obama administration oversold the small business tax credit provision in the new health care law. Under reform, businesses with 25 workers and average annual wages under $50,000 technically qualify for a credit, but in reality, many could come out dry. “The credit drops off sharply once a company gets above 10 workers and $25,000 average annual wages,” he argues:

It’s an example of how the early provisions of the health care law can create winners and losers among groups lawmakers intended to help — people with health problems, families with young adult children and small businesses. Because of the law’s complexity, not everyone in a broadly similar situation will benefit.

Consider small businesses: “The idea here is to target the credits to a relatively low number of firms, those who are low-wage and really quite small,” said economist Linda Blumberg of the Urban Institute public policy center. The smallest businesses are at greatest risk of losing coverage — assuming they can afford it in the first place, research shows. On paper, the credit seems to be available to companies with fewer than 25 workers and average wages of $50,000. But in practice, a complicated formula that combines the two numbers works against companies that have more than 10 workers and $25,000 in average wages.

Indeed, the new law provides the smallest businesses with the greatest aid and uses two separate phase out formulas — one for size of the company and the other for amount of wages — to determine how much each business can receive. But it’s inaccurate to describe the businesses that don’t qualify for the credit as “losers.” After all, if they don’t currently receive an added (extra) benefit, what exactly do they lose? Nothing.

In fact, they have much to gain. The law explicitly exempts small businesses with fewer than 50 workers from the free rider penalty and provided tax credits for small business employees to purchase insurance, allows businesses to pool risk through SHOP exchanges (a long time NFIB goal), and will distribute grants for employer wellness programs. To be sure, Congress could have included more money for small businesses. But they were operating under a certain cap and had to stay within certain fiscal limits. But just because the law doesn’t do enough, doesn’t mean it does nothing at all.

To figure out which business receives what, you can use CAP’s handy tax credit calculator.

As Democrats work to prevent a 21% pay cut to doctors treating Medicare patients, they may find an unlikely ally in hard-nosed libertarian Senate candidate Rand Paul, who just won an upset victory in the GOP Kentucky primary. The cut is the fault of the so-called sustainable growth rate formula (SGR), which Congress created in 1997 to match increases in physician payments under Medicare Part B to the growth in the GDP. SGR has threatened to cut Medicare reimbursements for nearly a decade and Congress has been preventing any cuts in payment without fixing the problem permanently. Each year the problem just piles onto itself – so what was a 2% cut back in 2002 has mushroomed exponentially into a 21% cut due June 1st.

In November, the House voted to replace the current SGR with a formula that would give doctors an annual payment increase equal to 1% more than the growth in the GDP (2% more for primary and preventive care physicians). But Democrats, concerned about that proposal’s high price tag (and worried that Republicans would add the cost of the proposal to price tag of the health care law), are now proposing a multi-year patch that would prevent the cuts from going into effect but do nothing to address the underlining problem.

Repealing the SGR would cost about $250 billion, a five-year fix “is estimated to cost $88.5 billion” and Paul, who as an ophthalmologist has an average salary of some $256,320, supports the more expensive permanent fix. From the WSJ:

In fact, Paul — who says 50% of his patients are on Medicare — wants to end cuts to physician payments under a program now in place called the sustained growth rate, or SGR. “Physicians should be allowed to make a comfortable living,” he told a gathering of neighbors in the back yard of Chris and Linda Wakild, just behind the 10th hole of a golf course.

Paul’s sentiment is shared by the American Medical Association and other doctors groups, but it’s particularly surprising for a candidate who rallies against “out of control” government spending and warns that the country could experience a Greek-like debt crisis. “I’m concerned that we could have a debt crisis in this country, and we’ve got to look at the entire budget,” Paul told CNN’s John King. “We either downsize departments, maybe eliminate some departments, maybe privatize some departments, or maybe we can’t do anything to a department. But we look at every department, every expenditure, and we find out how it can be reduced.” Apparently, the same does not apply for his own pocketbook.

Senate Democrats are expected to move the “scaled back” fix to the floor tomorrow and attract the support of Sens. Susan Collins (R-ME) and George Voinovich (R-OH).