The medical loss ratio (MLR) draft released today by the NAIC (announcement http://www.naic.org/Releases/2010_docs/naic_approves_mlr_reporting_form.htm, the calculation form http://www.naic.org/documents/index_health_reform_mlr_blanks_proposal.pdf, and the actual proposal http://www.naic.org/documents/ppaca_sub_draft_mlr_rebate_reg.pdf ) is written in the way the companies wanted because the companies control/feed the committees formed by the National Association of Insurance Commissioners (NAIC) who drafted it (the NAIC is comprised of the state insurance commissioners). In the draft Section 9f the companies even get to treat as deduction from premiums collected nearly all licensing, fees, and federal and state taxes except for federal income taxes on investment income and capital gains. Section 9c of the proposal says medical expenses aimed at health quality are to be treated as a claim if it is "directed toward individual enrollees" and "not be designed primarily to control or contain cost" – meaning the sales force that visits health care providers can claim to be advising on how to improve the health of the individuals that are cared for at the facility. Advertising that touts those visits – and the availability of equivalent nursing call lines – would be included as a medical expense. Only the fraud squad it seems is to be excluded as a medical expense. And, of course, once you include normal business operating expenses like the above, the cost of managing those expenses becomes a medical claim cost. The idea of a pure what did you pay for a claim ratioed to the premium collected was rejected.

So that HCR reform – the MLR limits that go in effect in January (large insurance plans must spend 85 cents of every premium dollar on health care while smaller plans can spend 80 cents on the dollar) on how insurers allocate customers’ premium dollars toward medical care versus administrative costs and profits – may, if this is adopted, be a weak indicator of a company’s management ripoff/ profit gouging. The NAIC draft is only a suggestion but who wants to bet that Obama will have tighter rules adopted by the U.S. Department of Health and Human Services (HHS). The HHS can expand, limited by enumerating specific qualified expenses, or tighten as to purpose the "expense to improve quality" definition, or throw it out altogether – the latter being what must be done if the regulation is not going to be gutted.

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