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One of the Affordable Care Act provisions most hated by insurance companies is the medical loss ratio reform. It requires insurers to devote at least 80 percent of premiums to medical care and pay customer rebates if they don't. Since the rule took effect 4 years ago, insurers have been forced to rebate over $2.4 billion.
Regulators enforce the law by requiring insurers to provide an annual accounting of premiums and medical expenses. In its latest report to regulators, Blue Shield of California has adopted an Orwellian definition of medical expense that includes administrative waste, and in doing so appears to have cheated Obamacare customers by at least $34 million.
Since resigning from Blue Shield to blow the whistle about the abuse of its nonprofit status, I've been bird-dogging the company. Piecing together information from regulatory filings, I recently discovered evidence that in calculating its 2014 medical loss ratio Blue Shield counted as medical spending tens of millions of dollars that it had paid out due to administrative mistakes. Yesterday, I filed a complaint with regulators, which the Los Angeles Times reported on today.
By Blue Shield’s own admission, these were “payment errors” that had “inflated” costs. But the company nevertheless classified them as medical expenses, pushing its reported medical loss ratio closer to the 80 percent minimum and reducing the rebates it paid by $34 million, or an average of $75 per enrollee.
Policyholders don’t get credit for premium payments that get lost or eaten by the dog, and neither should Blue Shield get credit for premium dollars it wastes.
The whole point of the medical loss ratio rule is to make transparent how much of the premium insurers devote to profits and administration and put a limit on it. Blue Shield’s dishonest accounting makes a mockery of the law. If regulators allow it to stand the door will be left open for other insurers to follow suit, eviscerating a key reform of the Affordable Care Act.