Side Effects: What’s a Medical Expense?

Vivek Rajasekhar /

Vague statutory language can make laws hard to interpret and enforce. And that’s certainly true of the recently-passed Patient Protection and Affordable Care Act.

Exhibit A: Obamacare requires insurers to spend at least 85 percent of group market premiums–and 80 percent of individual market premiums–on medical expenses.  The remainder goes to administrative costs and profits. But what does–and doesn’t–count as a medical expense?  Health insurers, legislators and regulators are already haggling over that question.

As Politico’s Sarah Kliff reports, “Claims for visits to physicians clearly fit the bill; likewise for surgeries and hospital stays. But what about a 24-hour nursing hotline? Does a flier in the mail that encourages subscribers to reduce sodium intake count? Or a new computer system to better manage care for multiple chronic conditions?”  Clearly, insurers will want to claim all such activities as medical loss.

While the 80% and 85% benchmarks invite confusion, they do nothing to improve the insurance system. Consistently high medical loss ratios can undermine the financial stability of insurers.  Moreover, as Dr. James C. Robinson, a professor of health economics at the University of California, pointed out in an article in Health Affairs, “the medical loss ratio never was and never will be an indicator of clinical quality.” It’s hard to see how the bankruptcy of an insurance company will benefit their consumers.

The push to raise medical loss ratios is part and parcel of the war on administrative costs. The left’s notion is that if health insurance companies reduce administrative costs, the savings will be passed on to their consumers. That argument doesn’t hold water. Effective administration is needed to prevent fraud, eliminate waste and keep all costs from getting out of hand.  It’s part of the solution, not the problem.

To keep their financial ship from taking on water, insurers will continue to negotiate with the government over what constitutes a medical expense. Notes Kliff, it’s just another instance of how Obamacare, “despite its breadth and length, still leaves much space for policy and political maneuvering.” But then, that’s typical of poorly constructed, hastily approved legislation.