Sullivan says new profit rules will restrict insurance market

Connecticut Insurance Commissioner Thomas Sullivan discusses with The Connecticut Mirror the impact of the new Medical Loss Ratio regulation approved by the National Association of Insurance Commissioners which will now go to Secretary of Health and Human Services, Kathleen Sebelius for "certification" as a regulation.

Sullivan declined to disclose the current medical loss ratios of specific Connecticut insurers. But generally speaking, he said, it's a wide range, from individual and small group plans that devote as little as 60 percent of their premium revenue on medical care to large-group insurers that spend as much as 90 percent on health benefits.

Sullivan said the new rules will render those figures meaningless, because, if the NAIC recommendations are adopted, insurers and regulators will be considering many new factors when making those calculations.

"You're going to move everybody into a new environment, where it's more prescriptive," he said.

He said it's hard to predict exactly how these new regulations will play out in Connecticut. But he rejects the argument of consumer groups that it will usher in a new era of lower premiums, without hurting competition.

"The more you regulate and constrain the market," he said, "the less capacity you have deployed and the less competition you have."

Finally, a government bureaucrat who understand free markets!

But what's even more interesting about this article is Sullivan's perspective on how the MLR regulation will impact Obamacare's regulation of so-called "unreasonable rate increases."

Obamacare gives Health and Human Services (HHS) $250 million dollars to give grants to states that, in the first phase, enhance their premium rate review process and, in the second phase, implement a new national definition of "unreasonable" rate increases. Insurers that run afoul of this definition will have to post a justification for the "unreasonable" increase on their website.

HHS wrote a letter to Sullivan criticizing him for approving a rate increase it considered "substantial" without following the premium rate review processes for which Connecticut would be receiving federal funds.

[Under the MLR regulation,] [i]nsurance companies that fail to meet the new medical loss ratios will have to issue rebate checks to consumers. So for example, if an insurer only spends 70 percent of its premium income on health benefits when it was supposed to spend 80 percent, it will have to refund the 10 percent difference to its customers.

Sullivan said that means if his office made a mistake in allowing, for example, Anthem to increase its rates by as much as 47 percent, then Connecticut residents holding those policies could get some money back at the end of next year.

"If my office ... missed the mark and gave them more than what they should have gotten, [the health care law] requires a rebate," he said.

In other words, with HHS now regulating Medical Loss Ratios, the regulation of "unreasonable price increases" is superfluous overregulation.