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."