Health Care Rebates (MLR) Help Cheating and Fraud?

More unintended consequences from ObamaCare that will cost everyone billions and give the insurance companies incentive to cheat on their reporting and customers good opportunity to steal, commit fraud.

But then these are two basic success tenets of the progressives that they believe we all must embrace. 

Health Care Plan Rebates Have Hidden Costs
Source: Christopher Conover and Jerry Ellig, "Conover and Ellig: Health Care Plan Rebates Have Hidden Costs," Roll Call, May 21, 2012.

A relatively obscure provision of the health care reform law establishes minimum loss ratios (MLRs) for health insurers, which places a cap on their administrative costs, marketing expenses and profits. The goal is to force plan operators to allocate a greater share of premiums directly to health care and preventative measures, say Jerry Ellig, a senior research fellow at the Mercatus Center at George Mason University, and Christopher Conover, a research scholar in the Center for Health Policy and Inequalities Research at Duke University.

However, the provision will also have a number of unintended consequences that Congress likely did not consider when passing the original law. Importantly, the MLRs discourage efforts to constrain fraud.

•The Kaiser Family Foundation recently reported that an estimated $1.3 billion in rebates will be delivered from health insurers to their customers for last year.
•These rebates are delivered by those plan operators that spent less than the MLR-required 80 to 85 percent of premiums on health care.
•However, efforts to fight fraud and limit its spread are designated by the MLR provision to be "bad" expenditures that do not count towards the 80-85 percent requirement.
•Supposing an insurance company is exactly at the maximum allowed spending on administrative costs, but it needs to spend an extra $100 to prevent $1,000 worth of fraud, it would choose not to do so because it would be penalized.
•Given that the National Health Care Anti-Fraud Association estimates that fraud accounts for 3 percent to 10 percent of total health care spending, this problem is substantial.

Perhaps more importantly, by attempting to control profits, the law creates a perverse incentive for insurers to game the system.

•Experience shows us that when regulation limits profits and allows companies to pass on costs to consumers, it kills the incentive for cost control.
•The easiest way for a company to make profits look reasonable relative to cost is to raise prices.
•For example, 85 percent of a $16,000 annual family premium leaves a bigger profit than if the premium were only $15,000.
•As long as the company can convince regulators that the cost of medical care has gone up, it can justify higher premiums.