So what did Texas ask for, exactly, regarding the MLR?

We are not opposed to the MLR in its entirety. What we would like to do is a phased approach. Some states have filed a waiver to not hold their carriers to the MLR, but Texas has said “we will get there eventually, but we want to phase it in over time.”

Why?

What Texas is really afraid of is that some healthcare markets are more profitable than others, and that while some are profitable, others are running at a loss. The fear is that if you implement the MLR suddenly, some markets will feel they will be forced to raise their premiums, which could result in losing business. Or, it could force carriers to leave those markets altogether.

How did Texas want to phase in the MLR?

According to a letter from the Commissioner in 2011, Texas requested a 71% MLR in 2011, a 74% MLR in 2012, a 77% MLR in 2013 and an 80% MLR in 2014. The HHS simply said no. They denied it altogether. It is what it is.

Have any other states succeeded with similar requests for a more flexible phase-in of the MLR requirement?

No. There has been no flexibility with other states. Nor has there been any reason given for the lack of flexibility. To my knowledge, there is no flexibility in the law, the way it is drawn up.

When you look at the MLR, a lot of people think there is a lot of money to be saved when you require the health plans to meet certain MLR requirements. The truth is, the savings are not really there.

What is interesting is to find out how much the MLR impacts the individual; does it really make health care more affordable?

On healthcare.gov, on February 16, the federal government noted that thanks to the MLR, up to nine million people could be up for a total of $1.4 billion in rebates. Everybody’s going to hold their hand out. But when you put pen to paper, the savings represent $164 to the individual per year. That’s $13.66 a month. Now, when you take a $400 premium and lower it $13.66 to make it more affordable, nobody on the face of the Earth is going to say, gee, I can afford it now.

The bottom line is that the intent of the MLR is good. But it’s just not there. When PPACA first came together, I did presentations on it, and on national average, you had Cigna playing 89.5% on claims, Aetna paying 85.4% on claims and Humana paying 84.7% on claims.

Look at Wellpoint in 2009. It was the biggest health insurer in America with $4.75 billion in net income. People see that and they get mad. They make billionsI Why charge so much? Wellpoint said they they could refund it all to their members and make zero money, but it would be $11.75 a month. So $4.75 billion sounds like money hand over fist, but that’s not really the case. It’s $11.75 a month.

Will $11.75 or $13.66 a month make health insurance more affordable? No. That’s the misunderstanding of the MLR. The majority of health plans are already there, and if they are not, then they are not missing it by much.

If that is the case, then why did Texas feel the need to phase in the MLR?

There was a fear that certain carriers would exit certain markets if they didn’t have enough time for certain markets to become profitable, or to renegotiate contracts with providers. Small group rates, for example, must be filed with the Texas Insurance Department, so for a health insurance plan to got rhough the market without losing money, it will need to refile its rates and get them approved. This impacts every state department that sets rates. So that may be more work than anybody can handle. And if a carrier can’t make money in a certain county, and it if can’t make it up elsewhere, it might pull out altogether.

Have any carriers actually pulled out, though? Or have any even suggested that they were actually going to?

Not yet, but the scenario that everybody is waiting on is the individual mandate. In my estimation, that is still the whole thing that is holding PPACA over everybody’s head. Everybody is waiting for the other shoe to drop or for 2015 to hit.

A lot of PPACA’s critics seem to be looking for the Supreme Court challenge to the individual mandate as the last real chance that PPACA could be overturned in its entirety. There are those arguing that there is no severability between the individual mandate and PPACA itself, so if you chuck out the mandate, you chuck out PPACA. But what if that doesn’t happen? What if the industry simply has to learn to live with PPACA, and the MLR? What are insurers in Texas doing now to prepare for that?

It’s hard to say what the future holds. We are trying to get ready for a healthcare law that nobody knows what it will look like, when it is all said and done. It’s like taking your car into the shop to get it fixed but you don’t know what the problem is. You don’t know what to look at or what the cost will really be. So we’re wondering, how will this impact us in the end?

My estimation is that the individual mandate is the key to the whole thing. You can’t have guaranteed issue without guaranteed coverage. Right now, the rules are written that you can’t deny anybody coverage for pre-existing conditions, so we have to cover everybody. But if nobody has to have the coverage, then that’s not fair for insurance carriers.

The biggest downfall of PPACA is that it does nothing to lower the cost of healthcare. You want to make healthcare more affordable, but is the answer to tell the carriers not to make any money? The MLR accounts for 20% overhead. That includes the cost of employment, employee benefits, agent and broker commissions – and nobody is set up to sell without agents to sell for them – expansion into new markets, and the ability to develop better product lines. There are a lot of costs in that 20%. And yet the effort has been to focus on lowering the 20% of the cost, rather than the 80% of it. That does not make sense.

We have heard this argument from health insurers before; that PPACA doesn’t actually cut down the cost of healthcare. Fair enough. But we also do not hear from insurers what they would do to cut down the costs of healthcare themselves. Any ideas?

That is an unanswered question. How do you provide the best health care in the world and still lower the cost of it? I don’t know the answer to that. But I do know that only attacking the 20% of the healthcare premium on the carrier side is not enough to make it more affordable.

You mentioned before that nobody is set up to sell health insurance without agents. Yet the MLR seems to go after agents’ commissions as a cost to lower. We are also seeing people buying more insurance online and through their smartphones. Could you see a world without agents?

Agents do more than just sell health insurance. The average employer is not set up to meet mandates and requirements, like when somebody dies, for example. Agents understand COBRA laws, get proper documentation, educate employers, walk them through the process on hiring. That’s where agents help, not just on the health side, but on the life and dental side, too. Health insurance bring a lot to the table. Can insurance be bought on the web? If you know what you want, yeah, but the average person doesn’t know that.