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Health Insurance: Read the Fine Print


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    The insurance industry has submitted over 100 letters requesting that certain expenses be included in the Medical Loss Ratio (MLR). Many of the letters are addressed to Lou Felice, chair of a group at the National Association of Insurance Commissioners. The more stuff Lou includes in this definition, the more profits insurance companies make.

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    In this letter, Aetna asks that loss adjustment expenses -- all of the administrative costs associated with processing a claim -- be included in the MLR. Decision: Not included.

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    Here, Best Life requests that any additional overhead costs or people they hire to comply with the law -- like lawyers, accountants or IT guys -- be included in the MLR. Decision: Not included. But hiring new health care personnel like doctors and nurses is.

    - Marketplace

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    An information tool, as defined here by Assurant, could encompass almost anything: posters, website development, generic mass mailings. Decision: Not included unless the material is personalized to the patient and makes specific mention of his or her health problem.

    - Marketplace

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    The nation's health insurance trade association -- America's Health Insurance Plans-- and many others argued that fraud investigation be counted in the MLR. Decision: Included. Companies can deduct fraud investigation expenses only if they recover their losses, and only up to the amount they recover.

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    Molina argued that a 24-hour nurse hotline be considered a Quality Improvement Activity. Decision: Included, so long companies can objectively prove they are improving health outcomes.

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    Some letters, like this one from Best Life, suggested that all taxes be included in the MLR. Decision: Uncertain-- the announcement will be made soon by Health and Human Services Secretary Kathleen Sebelius.

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    There are other expenses that companies requested be included in the MLR, like this one from Best Life. Acquisition cost is the expense incurred to enlist a new customer. This might include office expenses and commissions for insurance brokers. Decision: Excluded.

    - Marketplace

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    The cost of credentialing facilities -- administrative expenses to check and make sure doctors are members of and in good standing with the state medical board, for example-- were also up for discussion in this letter from Assurant. Decision: Excluded

    - Marketplace

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    ICD stands for the International Classification of Diseases, a standardized billing system. Companies are in the process of updating to the newest version, ICD-10. Aetna recommended that this expense be included in the MLR. Decision: Excluded.

    - Marketplace

TEXT OF STORY

Tess Vigeland: A chunk of the new health care reform law took effect this week. It affects insurance for kids of all ages and we'll get the details in a moment. Other pieces of the legislation will come to fruition over the next four years.

One element -- which starts Jan. 1st -- requires that out of each dollar we pay in health premiums, 80 cents must be spent on actual health care. But apparently what constitutes actual health care is up for debate.

From our Health Desk at WHYY in Philadelphia, Gregory Warner has been reading through some of the correspondence around that question.


Gregory Warner: It has been a long summer of letter-writing for the insurance industry. Six hundred pages of letters, all of them starting like this:

Insurance guy: Dear Mr. Felice...

Lou Felice chairs a group at the National Association of Insurance Commissioners.

Actor playing Lou Felice: Hello, I'm an actor playing Lou Felice.

Insurance companies want Lou to expand the definition of health care, so that they can keep more profit. Everyone agrees that health care includes paying doctors and nurses, but what else? And so to illustrate where this back-and-forth between insurance companies and insurance commission chairmen has led us, we bring you the last six months of written debate -- in about a radio minute.

Insurance guy: Dear Mr. Felice, we are concerned that the current proposal does not include loss adjustment expenses.

Loss adjustment expenses. That's money they spend processing your claim. On that one, Lou Felice's group said:

Actor playing Lou Felice: Uhh....no.

Insurance guy: But complying with the various requirements will require additional resources in terms of information technology and human resources.

Translation: salaries for insurance company lawyers and IT guys should also be considered health care.

Actor playing Lou Felice: Right. I'm gonna have to go ahead and say no on that one.

Insurance guy: Tools that provide customers with information are important components of a health care strategy.

Actor playing Lou Felice: Sending a letter to a customer does not qualify as health care!

Insurance guy: But what if we address you by name, and mention your health problems in the letter?

Actor playing Lou Felice: Right. Well, that's a toughie. [pause] O.K. I'll allow it.

Insurance guy: And a nurse hotline?

Actor playing Lou Felice: If you can prove it's working.

Insurance guy: And tracking down fraud?

Actor playing Lou Felice: That sounds like health care!

And there you have it: healthcare, now including personalized letters, effective nurse hotlines and fraud detection.

Insurance guy: Hey Lou, how about a break on taxes?

Actor playing Lou Felice: Let me talk to the secretary and get back to you.

Vigeland: And that would be Health and Human Services Secretary Kathleen Sebelius, whenever she decides to weigh in. We'll let you know. For now: Gregory Warner joins us with some non-thespian details. Hi Gregory.

Warner: Hi Tess.

VIGELAND: So the new rules on what is health care, that's hardly the only pill that insurance companies had to swallow here. This was a milestone week for the health care law. Tell us a little bit about what happened.

WARNER: That's right. This week the provision went into effect that you can keep your child on your health insurance policy until his or her 26th birthday. And that's up from age 19. Listeners might be familiar with these laws on a state level that have a lot of restrictions -- those are all gone. So the situation where someone has to enroll into community college, now you don't have to be a student, you don't have to live in the same state as mom and dad; the only restriction is you can't have insurance of your own.

VIGELAND: So if I'm a parent of an under-26-year-old, what am I looking into in deciding whether to sign up for this?

WARNER: Well first you have to wait for your employer to offer it, and that's going to be when your plan renews. For some people that's Jan. 1st, other people it's June -- some point next year. Then it's up to your employer if they want to charge you more. I talked to Joan Alker of the Georgetown Institute for Children and Families, and she said there are a lot of creative ways that companies can pass on those costs to workers.

Joan Alker: They could start structuring their plans so that if you are picking up your family coverage, you have to pay more if you have three kids on your plan as opposed to two kids, and that would really focus the increased costs on the families who are using it.

WARNER: But here's the good news: Professor Alker said most companies don't plan to pass on the costs because actually for the most part, young adults are pretty cheap to insure.

VIGELAND: What has been the insurance industry response?

WARNER: This young adult provision's actually pretty good for the insurance industry. I mean, they do complain about it but basically it means that millions of healthy young customers are coming onto the books. But other policies kicked in this week that they definitely don't like. For instance, lifetime dollar caps on coverage are abolished, so if you're very sick, you have an expensive-to-treat disease, you can stay on your plan indefinitely. Also health plans have to guarantee coverage for children regardless of their medical condition.

VIGELAND: So no pre-existing conditions for the kids anymore?

WARNER: Exactly. No pre-existing conditions. Insurance companies say, well this is a losing deal: parents are going to run out and just buy those policies for their kids when they get sick. So as of this week, in many states, some big insurance companies just stopped selling child-only policies, we're talking Aetna, Anthem, Wellpoint, the big ones. So we saw a shift, really, this week; a door opened. But on the other side, some kids lost that access.

VIGELAND: All right. And much more to come of course as we meet these deadlines for the health care reform package. Gregory Warner, thanks so much for your help today.

WARNER: Thank you, Tess.

VIGELAND: And special thanks to Alex Torra and David Sweeny of the Pig Iron Theatre Company for their dramatic contributions earlier. You can find more on the new health care provisions at marketplace.org.

About the author

Gregory Warner is a senior reporter covering the economics and business of healthcare for the entire Marketplace portfolio.

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