Could the Senate Bill Eliminate Private Insurance?

Robert Book / December 23, 2009

The Senate health care bill no longer contains an explicit “public option,” but it does include heavy regulation of private health plans, including minimum amount they must spend on medical claims, and taxes that will not count toward those limits, limits on deductibles and co-payments, and authority for federal regulators to define what services plans must cover. It’s entirely possible – in fact, even likely – that a combination of three particular regulations could combine to make it impossible for private health plans to legally operate, by making it impossible to meet all the requirements at the same time. By forcing private health insurers out of business, it would appear to “prove” that the public option is “necessary.”

There is an implicit maximum legal premium in the Senate bill. It results from the combination of the 40% excise tax on “excessive” premiums (over $8,500 for a single plan) and the 85% medical loss ratio (the percent of premiums that must be spent paying claims). A little algebra shows that if the premium exceeds 1.6 times the threshold, then it’s impossible to both required medical loss ratio and pay the excise tax. (more…)