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Coffman: PPACA’s Medical Loss Ratio is Bad Policy and Bad for Small Business

WASHINGTON, D.C.— House Small Business Investigations, Oversight and Regulations Subcommittee Chairman Mike Coffman (R-CO) today held a subcommittee hearing to examine new Patient Protection and Affordable Care Act’s (PPACA) Medical Loss Ratio (MLR) and its effect on job creation. Some have argued that the MLR requirements will ensure that customers receive the most value for their premium dollars. However, insurance agents, many of whom are small business owners and whose customers are often small businesses, believe that the MLR requirements may lead to lower levels of customer service and consolidation in the industry— which will result in job loss.

Under the health care reform law and its final rule, insurers must spend 80 percent of premium dollars on health claims for individual and small group policies. This Medical Loss Ratio means the amount that can be spent on administrative expenses is limited to 20 percent. If an insurer fails to meet the minimum requirements, it must issue rebates for the difference to its customers.

“President Obama claims the new healthcare reform law will decrease healthcare costs for Americans,” said Coffman. “However, the new Medical Loss Ratio included in the law may have the opposite effect by forcing insurers to increase— not decrease— premiums, because insurers will be discouraged from investing in administrative services, such as anti-fraud or anti-waste services, that could save consumers money. On top of this, the MLR may have a domino effect on small insurers by deterring many from entering the market, cutting the wages of current insurance brokers or forcing them out of business.

“The MLR is bad policy and bad for small business. With over 13 million Americans still unemployed and our economy still wavering, any law that comes from Washington should be facilitating growth— not increasing prices on consumers or killing jobs like the MLR will do.”  

For related hearing documents,
click here.

Notable Witness Quotes:
Gary Livengood, Principal of What a Stitch, LLC in Mt. Airy, MD, said, “I wish I could say that even better times are coming for What A Stitch but, unfortunately, the future still looks very uncertain. I know the intent of the new health law was to help business owners like me but, so far, I just don’t see it. The new law weighs heavily on my mind every time I think about hiring new employees or how our business may grow and change over the next few years.” 

Grace-Marie Turner, President of the Galen Institute in Alexandria, VA, said, “This Washington-knows-best attitude that is guiding the creation of more than 10,000 pages of rules and regulations to implement the health law will continue to cause a cascade of lost coverage because it is ignoring market forces in favor of Washington rule-making.” Turner went on to say, “There will continue to be a need for licensed, trained professionals to help individuals, employers and employees with their health insurance needs. Yet in every state, as a direct result of the new law’s MLR provisions, agency owners are reporting that they are reducing services to their clients, cutting benefits, and eliminating jobs just to stay in business. In some instances, they are simply closing their doors.”

Mitchell West, Insurance Broker at HealthChoiceOne in Greenwood Village, CO, said, “[I] have to sell twice as many policies this year in order to earn the same amount as I did last year. This situation is not sustainable for much longer. I have, thus far, been able to hold on, but many thousands of other agents all across the country who are also working under these circumstances have become unemployed or underemployed, or have permanently left the industry… I simply cannot stay in business operating the way I used to.”