Freedom

Story by Sally Pipes

Two days before Thanksgiving, Sen. Elizabeth Warren (D-MA) sent a letter with her colleague Sen. Mike Braun (R-IN) asking the U.S. Department of Health and Human Services to investigate the impact of Obamacare’s medical loss ratio rules on insurer consolidation. 

It’s a striking, if tacit, admission of the law’s flaws by one of the nation’s leading progressives.

Obamacare’s medical loss ratio rules require insurers to spend 85% of the premiums they receive in the large-group market, and 80% in the individual and small-group markets, on beneficiaries’ medical claims. The intent was to cap insurers’ profits and spending on marketing and administration. Politicians could claim they were ensuring that consumers got good value for their premium dollars.

But these medical loss ratio rules have driven consolidation throughout the healthcare market and resulted in higher prices.

In her letter, Warren lamented that insurance companies are buying up pharmacies, physician practices, and pharmacy benefit managers — the firms tasked with managing prescription drug plans for insurers — to subvert the medical loss ratio rules. 

Insurers can “pay out” medical claims to these entities. Those payments count toward the 80% or 85% of premiums that need to go toward claims. But practically, the insurers are just paying themselves, transferring money from the insurance division of the conglomerate to another entity under the same umbrella.

These consolidated insurers have little incentive to drive a hard bargain with their corporate cousins. The higher the price of a patient’s medication or doctor visit, the more money these vertically integrated insurers get to keep, medical loss ratio rules notwithstanding.

Indeed, the eight largest health insurers, which account for more than 60% of the market, are affiliated with the seven biggest pharmacy benefit managers. Some of them charge more than 20 times as much at their affiliated pharmacies compared to independent pharmacy Cost Plus across 19 different drugs, according to the Wall Street Journal. 

And the big insurers could get even bigger. Last week, Cigna and Humana announced their intent to merge. Cigna owns Express Scripts, one of the largest pharmacy benefit managers in the country.

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Higher prices for pharmacies and doctor visits mean higher premiums. But that’s fine for insurers, since the federal government picks up much of the tab for coverage in the individual market. About 4 in 5 exchange enrollees receive government assistance with their premiums. This year alone, Obamacare premium subsidies cost taxpayers $92 billion.

It’s refreshing to see a Democrat such as Warren acknowledge the dysfunction Obamacare has wrought on the healthcare market. But will she embrace the deregulatory agenda necessary to restore that market to health? One can always hope.