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New Healthcare Insurance Rules Hurt Small Businesses, Individuals

The contradictions in the hastily drawn Healthcare Reform Act are becoming more apparent and small businesses and individuals appear to be suffering.

A new Obama administration rule could drive out of the market the low-cost, high deductible plans that are supposed to be available under the act, commonly called ObamaCare.

As a result, it appears more likely that there will be a sharp jump in taxpayer subsidies.

The problem stems in large part from contradictions in the hastily written health care overhaul.

Starting in 2012, ObamaCare requires insurers in the individual or small group (small business) market to spend at least 80% of premiums on medical costs, leaving 20% for salaries, advertising, fraud prevention, profit, etc. For large groups, this medical loss ratio (MLR) must be 85%.

But as Investors Business Daily points out another section of the law establishes the actuarial value of plans that can be sold on exchanges, which will cater to individuals and small groups.

A bronze or lower cost plan is allowed to have an actuarial value of 60%, meaning the insurer pays 60% of health care costs and the policyholder 40%. A silver or more expensive plan can have a 70% value. Lower-actuarial plans tend to have lower MLR requirements.

Insurers offering bronze and silver plans must meet the 80% MLR under the final rule issued by the Department of Health and Human Services this week.

"It will make the carriers think long and hard about offering bronze policies and maybe silver ones," said Roy Ramthun, an independent consultant for consumer-directed health care.

Many bronze plans likely would have come with a high deductible. The higher the deductible, the fewer claims an insurer is likely to pay, thus reducing the MLR.

High-deductible plans, sometimes coupled with a tax-free Health Savings Accounts to help pay for expenses. These and other Consumer Directed Healthcare plans are expected and usually have lower cost options. By their nature these plans encourage people to be more frugal with their health care dollars.

For instance, the average deductible for small group HSA plans ranged from $2,820 to $2,957 in 2011, according to industry group America's Health Insurance Plans.

As of December 1, 2011, about 13 million people were covered by HSA plans. Only about 5% of HSA policies have claims above the deductible, says the HSA Coalition.

People with high-deductible and HSA plans could lose their coverage. The MLR regulation only counts payments made directly by insurers as medical expenses. Health care costs paid by individuals below the deductible don't qualify, making it hard for such plans to meet the 80% MLR.

"If it is too difficult, insurance companies won't offer them," said Ramthun, who played a major role in writing HSA regulations during the Bush administration. "That would mean the most affordable policies would go off the market."

During the ObamaCare debate, President Obama insisted, "nothing in this plan will require you or your employer to change the coverage ... you have."

A source close to HHS told Investors Business Daily that the regulation adjusts for small insurers who sell high-deductible policies. But for larger insurers that issue high-deductible policies, HHS assumes that they can meet the MLR standards with the claims from the other types of policies they sell.

Finally, Investors Business Daily and others argue the rule could raise the cost to taxpayers. ObamaCare's premium subsidy is based, in part, on the second-cheapest silver plan in the state in which the individual or family resides.

Silver plans' premiums could be far higher with an 80% MLR.

"If you have a more expensive plan it's going to take more money to help people afford it," said Dan Perrin, executive director of the HSA Coalition. "As things stand now you can expect ObamaCare to cost a lot more."

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