Why Are Health Care Prices Rising So Fast?
The Affordable Care Act established the Medical Loss Ratio (MLR) with the goal of forcing insurance companies to spend premium dollars on actual health care expenses. The MLR, which legally requires 85% of the premiums paid by businesses with over 50 employees be spent directly on health care expenses, does nothing to encourage management of claims expenses.
Under this rule, insurance companies have no incentive to keep costs low, since managing claims costs would decrease the amount of profit available to them. As group premiums rise, so do the potential profits to the insurance company. As a result, hospitals have increased their markups to over 1000%, an increase that filters to employers as premium increases year after year.