Obamacare caps the profit health insurance companies are allowed make at minuscule percentages

Nancy Pelosi said on March 9, 2012  ”We have to pass the bill to find out what is in it."  Today, I found out about one more egregious overreach of  Federal power buried in Obamacare.

The Federal Government, through Obamacare, is now capping the percentage of profit that a private health insurance corporation is allowed to make. 

I got an unexpected check in the mail today, along with a letter from my health insurance company, and a second mailer that included the graphic above.  

Here’s what the letter said (emphasis mine):

Dear REDACTED

This letter is to inform you that you will receive a rebate of a portion of your health insurance premiums.  This rebate is required by the Affordable Care Act - the health reform law.

The Affordable Care Act requires BlueCross BlueShield of Tennessee to issue a rebate to you if BlueCross BlueShield of Tennessee does not spend at least 80% of the premiums it receives on health care services, such as doctors and hospital bills, and activities to improve health care quality, such as efforts to improve patient safety.  No more than 20 percent of premiums may be spent on administrative costs such as salaries, sales, and advertising.  This requirement is referred to as the “Medical Loss Ratio” standard or the “80/20” rule.  The 80/20 rule in the Affordable Care Act is intended to ensure that consumers get value for their health care dollars.  You can learn more about the 80/20 rule and other provisions of the health reform law at: http://www.healthcare.gov/law/features/costs/value-for-premium/index.html

What the Medical Loss Ratio Rule Means to You

The Medical Loss Ratio rule is calculated on a State by State basis.  In Tennessee, BlueCross BlueShield of Tennessee did not meet the Medical Loss Ratio standard.  In 2011, BlueCross BlueShield of Tennessee spent only 76.6% of a total of $253,702,194 in premium dollars on health care and activities to improve heath care quality.  Since it missed the 80% target by 3.4% of premiums it received, BlueCross Blue Shield of Tennessee must rebate 3.4% of your health insurance premiums.  We are required to provide this rebate to you by August 1, 2012, or apply this rebate to your premium that is do on or after August 1, 2012. 

We are enclosing a check.

The letter is signed by Vicky Gregg, CEO of BCBSTN and is obviously the fulfillment of a legal requirement to inform customers of the 80/20 requirement and why they are receiving a check.  But here’s where it gets interesting.  The color mailer that came with the letter and the check includes the following information about BCBSTN’s budget for 2011.

Where does your premium dollar go?

  • 76.6% Claims and quality improvement expenses
  • 3.4% Rebates
  • 18.9% Administrative costs (i.e. claims processing, marketing, broker commissions/sales, fraud prevention)
  • 1.1% Net Income (profit)

Almost eighty cents of every dollar paid in individual health care premiums to BlueCross BlueShield of Tennessee, in 2011, were used to pay for medical expenses.  The remaining portion was used to pay for operational costs.  Here’s a simple breakdown of expenses.

Activities that help reduce claim costs and keep premiums as low as possible:

  • Negotiating with doctors and hospitals for lower rates
  • Preventing fraud by detecting and correcting abusive billing practices

Employee salaries, technology costs, and other administrative expenses required for:

  • Paying claims agents according to the benefits provided in the insurance contract
  • Paying agents and brokers to sell our insurance products
  • Designing and delivering insurance products that meet the needs of Tennesseans
  • Activities required to comply with State and Federal Laws
  • Advertising
Your rebate amount is based on an adjusted premium - which is the premium less state taxes and fees

My insurance company made over 3x less profit (1.1%) than the amount of rebates (3.4%) it was required by Obamacare to send.  By requiring health insurance companies to spend at least 80% on medical expenses and leaving only 20% for overhead, the Federal Government is essentially capping the amount of money a private corporation is allowed to make.  Insurance companies now have their wings clipped, limited to minuscule percentages of their overall budget.  1.1% profit margin is just a fingernail above operating in the red.  

By comparison, restaurants operate on an average 9.9% profit margin.  Water utilities have an average 12% profit margin.  Soft drink manufacturers have an average 15% profit margin. The cigarette industry’s average profit margin is 22.5%.  

Democrats made no secret that Obamacare was just one step on the way to single payer.  The 80/20 rule makes Obamacare a giant leap.  

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