Texas Insurance Companies Waste More Money Than Any State's -- But You May Get Some Back

Categories: Biz, Healthcare

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Insurance companies could learn a thing or two from the private sector. Er ...
If you are one of the 18 million or so Texans who have health insurance, you may find something unusual in your mailbox this summer: an envelope from your insurance company stuffed with cash or, more likely, a check.

That's when the provision of the Affordable Care Act (aka Obamacare) will require insurers who didn't spend at least 80 percent of their 2011 premiums (the threshold is 85 percent for the large-group market) to return the difference to consumers. And thanks to the supreme wastefulness of Texas insurance companies, our fine state's insurance companies will be doing a lot of returning.

The rule is intended to reduce waste in an undeniably bloated, not to mention byzantine, health-insurance system. For an idea of how bloated insurance companies are, and how much they might be coughing up this summer, Wake Forest University law professor Mark Hall did a state-by-state analysis of insurers' 2010 "medical loss ratio," which is a fancy term for how much they spend doing what you pay them to do, which is covering your health-care costs.

Texas, keeping with its reputation for superlatives, tops Hall's list. Our insurance companies (22 of them to be exact) overshot the federal MLR threshold by $255 million. That's a solid $54 million more than Florida, the runner-up. In layman's terms, this means our insurers waste a shitload of money on bureaucracy.

Hall posits several possible reasons for Texas' front-runner status.

"Historically, in a lot of states including Texas there hasn't been aggressive rate regulation of insurers," Hall told Unfair Park. "The government has relied on the market to discipline how much their overhead is."

No surprise there. In addition, a relatively high proportion of Texans get their insurance on the individual market, which tends to have higher overhead because "you're selling retail instead of wholesale."

Texas is also large, with a very crowded insurance market that, paradoxically, tends to drive administrative costs skyward as companies spend resources competing for business.

How have insurance companies gotten to be so glaringly inefficient? Don't they have a built-in incentive to reduce overhead and cut administrative costs?

They do, Hall said, but a company's profits are part of that 15- to 20-percent slice of premiums the government allows as overhead. And he isn't sure what the effect of the new regulations will be.

"You could see it going one of two ways -- and you'll probably see both things," Hall said. "One is to try to get their costs and profit margin down to make sure they don't have to pay any rebates."

That could leave money on the table, likely prompting some companies to absorb the rebate costs and maximize profits.

As for who gets that check and how much it will be, that depends.

"We don't really sort of fully know how they're going to work," Hall said. "A lot of those details haven't been worked out."

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11 comments
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katerinaa
katerinaa

In Texas there hasn't been aggressive rate regulation of insurers. The government has relied on the market to discipline on the insurers as well an on how to make policies.

dallasphotog
dallasphotog

You'll get $.50 Lawyers involved will get millions.

scottindallas
scottindallas

 true of most class actions, but hard to see where in this case.

gladnotsad
gladnotsad

I just LOVE your naivety. The insurance health industry machinations have been self servingly  "byzantine" for nearly half a century or more.  You're getting belatedly involved in the discussion.  ACA like most govt. legislation is another "gift" to the (lobby intensive) industry.  Yes, the states have to set up"pools" or the federal govt. will do it for them, and the insurance co.s will have to spend more of their "reserve" obtained in premiums...BUT, have you noticed  (hard not to) your deductibles going into outer-space?  This was the result of inclusive "screening" under the ACA.  Next stop will be ACOs which will restrict your care to certain providers and hospitals--not of your choice--all in the name of "enhanced wellness".  Insurance companies will always come out on top and they are still free of any anti-trust restraints.....What a deal!

T. Erickson
T. Erickson

Insurers returning money to their customers. Sounds like a good thing. So why do all the political ads say Obamacare is bankrupting us?

Albert
Albert

"...why do all the political ads say Obamacare is bankrupting us...

"...this means our insurers waste a shitload of money on bureaucracy..."

Somewhere in this random collection of words is irony, I"m sure of it.

Econ 101
Econ 101

run away entitlement spending, buck passing to the states, market inefficiencies inherent with cost shifting away from consumers of a service, just to name a few reasons.

Guest
Guest

Because Obamacare uses savings from Medicare to pay for a lot (if not most) of its costs, and my fellow Republicans assume that once the Medicare trust fund runs dry, the government will end the program and/or severely curtail it, leading to the loss of savings that "pay for" the bulk of the program.

Mickister
Mickister

Without defending insurance companies or waste, I will say that a per capita number instead of a total number would have been more interesting.  Texas is a big state after all. 

And I think the picture would have been more interesting if the woman on the right was holding up a sign that said, "don't take away my breast exams."

That is a woman, right?

EricNicholson4
EricNicholson4

 Whoops meant to post a link to the study:

http://www.commonwealthfund.or...

Per capita, you're right, Texas is a bit further down the list. Tied for 16th if I'm counting right. But "Texas insurance companies in top 2/3 of wastefulness" doesn't pack such a punch.

Mickister
Mickister

Thanks.

That's about what I would have guessed: not good, but not last. 

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