In January 1971, distributors from across the country converged on Boca Raton, Fla., for the Miller Brewing Company's annual meeting. Miller was founded in 1855, and to that point had produced just one brand, "Miller High Life," which they dubbed "the champagne of beers."
It was at that meeting that Miller's president, William Kostecke, changed the company's history by announcing that they would begin experimenting with what he called "secondary brands." Three years later, Miller Lite shook the industry and created a whole new category of beer.
Some were concerned about the challenge of marketing a low-calorie brew to men who had no interest in counting calories and who might not perceive the new product as "manly" enough. The task of overcoming the perception that this new brand wasn't "real beer" fell to ad agency McCann-Erickson. The "Less Filling -- Tastes Great" campaign, complete with football and basketball players debating each side propelled Miller Lite into the No. 1-selling light beer -- a position it still holds today.
While listening to some Washington folks engaged in one of the first implementation discussions of the new health care law, I thought they should adopt Miller's slogan. PPACA requires insurance companies to maintain certain specific Medical Loss Ratios (MLRs). Large group plans will need 85% MLRs, while small group and individual plans are pegged at 80% under the new law. Getting there is shaping up as a battle between "tastes great" and "less filling."
From a 30,000 foot level, MLRs seem simple enough. The Dictionary of Insurance Terms (Harvey Rubin, 4th Ed. Baron's Educational Series -- 2000) offers this definition: "In insurance, the loss ratio is the ratio of the total losses paid out in claims plus adjustment expenses divided by the total earned premium." So, if an insurance company pays out $80 for every $100 of premium collected, the loss ratio is 80%. This seems simple and easy to define -- but the reality is that nothing in the creation of legislation and regulation is ever simple or easy.
Indeed, the conversations being held in Washington are rapidly approaching the level of Clintonian parsing. ("It depends on what the meaning of is, is.") What is a legitimate claim expense? Beyond direct payments to providers and facilities, what may or may not be included in those expenses? How will insurers meet these new targets and how will patients and providers be affected? Since these MLR requirements go into effect on Jan. 1, 2011, this is one of the first of the regulatory considerations being considered and everyone is weighing in.
The National Journal recently brought together a panel of experts to offer their opinions. Unsurprisingly, to a large extent, the position of the participants in this conversation mirrors their positions during the run-up to passage of the legislation. Equally unsurprising, the partisans in this battle appear as intransigent as they were prior to the new law, and yet the discussions and ramifications are quite interesting.
Kim Holland, secretary of the National Association of Insurance Commissioners (NAIC) noted that "Loss ratios in the health field are especially complicated." While some may ascribe the comment to gross understatement, Ms. Holland is absolutely accurate in her observation. "Companies use so many tools to manage care, and classification is not easy." As the insurance commissioner in Oklahoma, Holland and her fellow commissioners were to have delivered a proposal to the Department of Health and Human Services by June 1 outlining how various expenditures should be categorized.
With the ink still drying on the new law, Wellpoint moved to reclassify expenses such as nurse hotlines, disease management and the like as medical rather than administrative expenses. Senator Jay Rockefeller (D-WV) believes that this is a move by Wellpoint and other carriers taking similar actions to game the system in an effort to get around the new rules. This Maslovian reaction may make good tabloid fodder, but it does a disservice by belying the real complexities in this discussion -- many of which could have a direct bearing on patients.
Karen Davis, President of The Commonwealth Fund, sees the discussion from the perspective of an organization with nearly 100 years of advocacy for government-oriented solutions for health care problems. She argues that, "The Affordable Care Act's new medical loss ratio requirements are an important way that the law improves the value consumers receive for their health insurance payments and will place downward pressure on premiums over time." Perhaps this will happen, but without careful and thoughtful deliberations, the outcome may be quite different than Ms. Davis envisions.
Karen Ignani, President and CEO of America's Health Insurance Plans (AHIP), has an understandably different viewpoint. Ignani agrees that, "... our health care system needs to do far more to promote quality, reward value and incentivize prevention and wellness." Yet she notes that improved outcomes and increased quality flowing from innovations such as care coordination, disease management, prevention, wellness programs and others may be stilted if these efforts are viewed as expenses rather than included in claims costs. "It is vital that these requirements do not turn back the clock on efforts to improve the quality and safety of patient care. That is why policymakers specifically stated in the new law that 'activities that improve health care quality' should be counted towards the MLR requirement."
Gail Wilensky, former Deputy Assistant to President G.W. Bush and now a Senior Fellow at Project Hope, opines that, "... spending on quality improvements and patient safeguards should be encouraged -- not discouraged." She is concerned that a single-minded, blinders-on focus on cost without concurrently looking at improvements in outcomes and other measures might place insurers on the level of public utilities.
Wilensky points out that, "Medicare, which has low administrative health care costs, spends the least on quality improvement strategies and improving spending safeguards." She cautions that, "If we aren't careful, we are likely to mimic exactly what's wrong with Medicare onto the rest of health care."
Janet Trautwein, CEO of the National Association of Health Underwriters, raises a point that is essential in understanding how these expenses should be characterized: "Many insurer activities are designed to assure that consumers get the best care at the best time -- which leads to higher overall quality of health." She notes that, "A reasonably broad definition of quality improvement activities will allow plans to advance new patient and wellness programs that ultimately could bend the cost curve and help make coverage more affordable.
The new argument is the old argument: Cost vs. value; tastes great vs. less filling. It is easy to lower the cost of anything by summarily removing deliverables -- yet that inevitably results in a decrease in value. This is universally true to all industries and endeavors. While we hope that regulators strive for balance, we should guard against their result being defined by another famous Miller Lite slogan: Everything you always wanted in a beer ... and less!
David A. Saltzman, RHU, DIA, is national marketing director of Chicago-based Disability Resource Group Inc. The South Carolina resident is a past president of NAHU and has been a health, disability, life and employee benefits broker for more than 25 years. Readers may contact him at dsaltzman@drgdi.com.
