PPACA's Effects on Maintaining Health Coverage and Jobs: A Review of the Health Care Law's Regulatory Burden

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Chairman Pitts, Ranking Member Pallone, and members of the Subcommittee:

I am pleased to have this opportunity to provide testimony on the health insurance rate review and minimum medical loss ratio (MLR) provisions of the Patient Protection and Affordable Care Act (PPACA). My main points are as follows:

1. The PPACA's rate review and MLR provisions represent costly, bureaucratic interference with insurers' legitimate business decisions and state regulatory prerogatives that will do little to enhance competition in health insurance markets and the availability and affordability of health insurance.

2. The rate review provisions and their implementation will not enhance consumer choice or lower premiums, but instead will increase insurers' costs and risk, reduce their willingness to offer coverage, undermine their financial strength, and possibly increase pressure for even tighter regulation and/or enactment of a public option.

3. The MLR provisions will distort insurers' incentives for legitimate business decisions, destabilize some states' markets, and could reduce incentives for certain beneficial innovations in coverage and payment.

4. The PPACA's rate review and MLR regulations should be replaced with procompetitive reforms that would encourage states to adopt policies that promote informed competition and consumer choice.

Introduction

Although the PPACA does not authorize the U.S. Department of Health and Human Services (HHS) to approve or deny proposed rate changes, it requires health insurers to justify "unreasonable" rate increases to state regulators in states with HHS approved rate review procedures, or to the HHS if a state's procedures are not approved. Insurers with "unreasonable" rate increases can be excluded from participation in the health insurance exchanges scheduled to commence operation in 2014. The law authorizes grants to states to "enhance" their rate review, and the HHS proposes supplemental financial awards to states that adopt prior approval regulatory of rate changes.

In addition to its rate review provisions, the PPACA requires that health insurers' spending on medical care and "activities that improve health care quality" must equal or exceed 85 percent of premiums (net of certain taxes and fees) for large group coverage and 80 percent of premiums for individual and small-group coverage. If necessary, insurers must rebate premiums to achieve these minimum "medical loss ratios" (MLRs).

Scott Harrington is an adjunct scholar at AEI

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