The Department of Health and
Human Services has taken to touting ObamaCare’s alleged consumer
benefits, and in particular the rebates insurers are now required
to send customers thanks to the law’s medical loss ratio (MLR)
rule, also known as the 80/20 rule.

That provision requires health insurers to spend at least 80*
percent of collected premium dollars on medical care. If not, they
have to rebate the difference to the customer. This year, insurers
rebated slightly over $1 billion, or
about $151 per person on average. “Thanks to the law,” HHS
Secretary Kathleen Sebelius said
in a press release discussing the provision, “our health care
system is more transparent and more competitive, and that’s saving
Americans real money.” 

Journalists covering the provision have often made similar
points. ABC News
reported this summer that the rule is “aimed at holding health
insurance companies accountable for how they spend the money
collected through premiums.” On the same day the ABC News piece
ran, CBS
let the world know that the health law “requires insurers to
spend premiums on patients — or pay rebates.” USA Today

published a news report that boreder on advertorial under the
headline “Health insurance rebates may keep premiums down for
everyone.” 

Or they may not. Not one of these articles noted that the
provision is actually likely to make health insurance premiums more
expensive. For that, you’ll have to turn to
the folks at NPR’s Planet Money. Reporter David Kestenbaum
called six health economists. “No one thought the provision would
do much good,”reports Kestenbaum, “and several thought it could be
harmful.” That list includes one of ObamaCare architects and
supporters, Jonathan Gruber. 

Why are economists so sour on the provision? The worry is that
rather than look for ways to control costs, insurers will simply
let spending balloon, leading to higher premiums — and bigger
profits. It’s easier to cover someone’s health costs on 80 percent
of $1,000 than it is on 80 percent of $100. And because insurer
profits and other administrative costs must come from the remaining
20 percent, there’s a larger pool from which to draw profits and
business expenses. 

But as the administration surely knows, a check in the mail is
easier to see than cost restraint, and lower premiums, in the
absence of those rebates. Indeed, the administration has worked to
ensure that customers know exactly where those rebate checks are
coming from. Health insurers sending out rebates this year were

required to include a letter stating in the first paragraph that
the rebates are required by ObamaCare.  

I’m glad to see that Planet Money is giving this provision some
of the scrutiny it deserves, though I wish more attention would
have been paid to it before now. For that, you would have had to
look
here, here, here,
here,
here,
here,
and here. 

*Changed to say 80 percent, not 20 percent.