Friday, September 24, 2010

Taxes Qualify as Medical Expenses

Congress delegated the definition of medical loss ratio to an industry trade group, the National Association of Insurance Commissioners (NAIC).  The medical loss ratio is the amount of premium required to be spent on medical care vs. administrative expenses.  The battle over what qualifies as medical care nears an end with the NAIC's draft regulation.

Under a draft plan released on Thursday, insurers would be allowed to deduct nearly all federal and state taxes except for federal income taxes on investment income and capital gains in making their calculations.
"It's written the way insurers wanted it to be written, and so that is good for the insurers," said Amy Thornton, an analyst at Concept Capital's Washington Research Group.

The bill also gives a generous definition of medical expenses intended to improve the quality of care.

In its proposal, NAIC said medical expenses aimed at health quality "must be directed toward individual enrollees" and "should not be designed primarily to control or contain cost."
Here's the definition from the NAIC:

Improving Health Care Quality Expenses – General Definition:
Quality Improvement (QI) expenses are expenses, other than those billed or allocated by a provider for care delivery (i.e., clinical or claims costs), for all plan activities that are designed to improve health care quality and increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements. The expenses must be directed toward individual enrollees or may be incurred for the benefit of specified segments of enrollees, recognizing that such activities may provide health improvements to the population beyond those enrolled in coverage as long as no additional costs are incurred due to the non-enrollees other than allowable QI expenses associated with self insured plans. Qualifying QI expenses should be grounded in evidence-based medicine, widely accepted best clinical practice, or criteria issued by recognized professional medical societies, accreditation bodies, government agencies or other nationally recognized health care quality organizations. They should not be designed primarily to control or contain cost, although they may have cost reducing or cost neutral benefits as long as the primary focus is to improve quality. Qualifying QI activities are primarily designed to achieve the following goals set out in Section 2717 of the PHSA and Section 1311 of the PPACA:
• Improve health outcomes including increasing the likelihood of desired outcomes compared to a baseline and reducing health disparities among specified populations;
• Prevent hospital readmissions;
• Improve patient safety and reduce medical errors, lower infection and mortality rates;
• Increase wellness and promote health activities; or
Enhance the use of health care data to improve quality, transparency, and outcomes.
I bolded the "enhanced use of health care data" in light of Peter Orszag's recommendation that health care move from double blind clinical studies to clinical modeling.  Oddly, he suggested economics move in the opposite direction, away from econometrics to designed economic experiments.  That was after econometric models designed "fail proof" Triple A mortgage backed securities, which later imploded.  What Quants did for Wall Street, they can do for health care. 

Insurance "medical expenses" will include corporate taxes and Quants doing data mining.  That doesn't seem right, not in the least.  Did they tell President Obama, HHS Secretary Kathleen Sebellius, Health Reform Czar Nancy-Ann DeParle and White House spin-mistress Stephanie Cutter in their recent meeting?

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