Wednesday, January 9, 2013

Obamacare, Medical Loss Ratio, MLR Rule, Death Spiral

Obamacare has a requirement called the MLR Rule.
MLR stands for Medical Loss Ratio.
Obamacare's MLR Rule requires that all insurance policies pay out at least 80% of what it collects in premiums on medical expenses.
This reduces profit margins on all policies, forcing insurers to raise premiums.
With higher premiums, the younger and  healthier uninsured will find it cheaper to pay the Obamacare penalty for not having health insurance, only to later purchase a policy when they need medical care. 
They will be able to do this because, by Obamacare law, they cannot be denied insurance based on any pre-existing conditions. 
Thus insurance companies will be prompted to raise premiums further since more of their customers are those who require expensive treatment.
This cycle of cause and effect increases is known as the Obamacare "Death Spiral."