Businesses across Oklahoma and the nation are unexpectedly getting checks from their health insurance companies due to the Mandatory Loss Ratio (MLR) requirements of the Affordable Care Act. One would think it's a good thing to make those huge insurance companies pay back money to consumers. For the short term, it might be. In the long run, not so much.
In the 1970s, health insurance companies paid about 65 percent to 70 percent of their premiums in claims. Due to competition, new technology, mergers and other private-sector pressures, the percentage of premiums paid out in claims has continuously increased without government intervention. MLR may force some insurers to rebate premiums, but many won't rebate because they already met or exceeded the 80 percent (85 percent for larger employers) requirement for the year 2011. The free market, where competition and improved efficiencies create the incentives to grow an insurer's business and market share, is now all but gone due to Obamacare.
Once insurers reach the MLR threshold and the incentives to attain greater efficiencies are gone, insurance companies will operate just above the line, not a fraction better. When new legislation establishes a vendors “margin,” the law stops progress dead in its tracks. The incentive to do better is legislated away! Now, thanks to Obamacare, the law of unintended consequences has another victim: people who pay for health insurance. They'll never get to buy insurance from a company that strives to be more efficient in the future.
Randy Wedel, Stillwater