Health Insurance Rate Increases: A Regulatory Tsunami!

The next part of the health insurance rate increase puzzle is the effect of the medical loss ratio (MLR) rules. The ACA requires that health insurance companies pay out at least 80% of all the premiums collected to cover the cost of medical services for their health plan subscribers. If the company does not spend 80% during a year, then they are required to rebate the money to the plan subscribers. Last year the industry paid out about $1 billion.

Is ObamaCare Causing Health Insurance Premiums to Rise?

The MLR provision creates two incentives for insurers to jack up health insurance premiums. One is the plain fact that with profit and administrative costs capped as a percentage of premium revenue, the easiest way to generate larger profits is to charge higher premiums.
The other is that the rebate requirement means insurers may need to charge higher up-front premiums in order to protect themselves from the risk of a bad year. As Scott Harrington, a professor in the University of Pennsylvania’s Department of Health Management, explained in a November 2012 paper, that’s because health insurance claims — and thus MLRs — fluctuate significantly between years. Harrington’s paper, which got funding from a health insurance trade group, argues that the annual variation, and the resulting uncertainty, creates a problem for insurers: If claims are low in a given year, they end up rebating the difference to the customer because of the MLR rule. If claims are unexpectedly high, however, they end up eating the difference. Insurers thus have a incentive to protect themselves by charging high premiums at the outset, and then paying those premiums back in rebates should claims come in at low or expected levels.
Written by Peter Suderman, senior editor at Reason magazine and Reason.com.

Okay, so far we have the following 6 reasons why health insurance rates are rising:

1. Profiteering
2. Increased Medical Costs
3. Sicker Health Plan Subscribers
See the rest of the 6 reasons, AND a 7th that will probably dwarf the other 6 on page 3 below.