By John R. Graham • Thursday December 18, 2014 5:32 PM PST •
Despite the end of Obamacare’s “bailout” for health insurers, some of our friends who seek to repeal and replace Obamacare insist on finding a crony capitalist under every bed and in every closet.
Yuval Levin, at National Review Online, appears to have been the first to identify an adjustment to an insurance regulation, buried in the CROmnibus, as “cronysism” for non-profit Blue Cross and Blue Shield health plans. This has been picked up by Louise Radnofsky at the Wall Street Journal and Timothy P. Carney at the Washington Examiner.
Mr. Carney notes that there is “no clear right or wrong in this matter,” but he criticizes the adjustment for “providing Obamacare relief for exactly one corporation.” However, the relief does not apply to “exactly one corporation.” It applies to all Blue Cross and Blue Shield plans.
The provision in question is an adjustment to how Obamacare regulates the Medical Loss Ratio (MLR). At its simplest, the MLR is the ratio of dollars a health plan spends on medical claims divided by the total premiums it receives. The denominator in that ratio is fairly easy to figure out, but the numerator has been subject to intense negotiations and lobbying between the health plans and the Obamacrats.
Sarah Kliff at Vox explains the regulation and its adjustment. If a health plan spends money on “quality improvement”, is that medical spending or not? Does it belong in the numerator? The reason health plans want to add as much spending as possible to the numerator is that Obamacare, for the first time, imposes federal regulation of the MLR: Group plans have to hit a ratio of 85 percent, and individual plans 80 percent. A plan which fails to hit this number must pay a rebate to consumers. Generally speaking, health plans’ spending on “quality improvement” is considered medical spending for this purpose.
However, the original Obamacare legislation harmed Blue plans’ 833 status (named after that section in the Internal Revenue Code). Section 833 gives special tax deductions for Blues plans. Obamacare did not include “quality improvement” spending in the MLR as calculated to determine whether Blues plans could retain their 833 status.
So, is this fix harmful cronyism? I don’t think so.
First, 833 predates Obamacare. It was passed in 1986, in an attempt to clarify Blue plans’ tax status that reaches as far back as 1942. The CROmnibus’s MLR fix cuts Obamacare taxes on some health insurers, but it does not raise taxes on anyone else. That would seem to be a pretty good blow against Obamacare. The tax treatment of Blue Cross and Blue Shield health plans versus for-profit health plans is a decades-old swamp of federal and state laws. It is messy. Nevertheless, individuals and groups are free to choose which type of health plan they want, and insurers have converted between Blue and for-profit status.
Second, the MLR itself is a regulatory absurdity. As Robert Book has explained, it inhibits insurers from smoothing their reserves, causing Insurance Commissioners to demand higher premiums. Back in 2008, I researched the relationship of MLR to market share in California. The result? Beneficiaries appear to care not the slightest about insurers’ MLR. Regulating the MLR merely takes the power to choose which health insurer to use away from consumers and gives it to government. Anything that weakens the MLR regulation is a step in the right direction.
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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.