Medical Loss Ratio Creates a Perverse Incentive to Spend More

The medical loss ratio and its required spending on medical care creates a perverse incentive for people to spend more money on medical services, according to Margaret E. O’Kane, MHA. She added that while the rule came out of a motivation to restrict profits, the unintended consequence of the 80% to 85% rule is worrying.

Leah Binder agreed that the rule provides an incentive for plans to spend too much, but one thing she hopes ends up in the final rule is the transparency provision. “That really is requiring plans to be transparent about their network,” she said. “Who’s in the network, etc.”

However, the panelists all discussed how much consumers actually use the information being made available to them. O’Kane believes that the industry expects too much of consumers in terms of active shopping.

“I believe in transparency, I just don’t think we should get too complacent thinking if you just put the information out there, that solves the problems,” she said.

Austin Frakt pointed out that in the case of patients with substance use and mental health disorders, they are the highest cost patients, but they might not be in a position to use information made available to them. However, while Binder disagreed specifically about these patients, because often families of the patient make decisions in those instances, she agreed that traditionally consumers do not use quality information even when it’s available. But that is changing.

“In the private sector more people have high-deductible plans and they need to pay the whole bill out of their pocket, so they’re very interested in the price of care,” she said. “And that has brought them to the table to also look at quality, because price is not enough information. Once you know how much it is, you want to know how to get it.”