Igor Volsky at WonkRoom has just discovered that when you arbitrarily set restrictions on what sorts of expenses companies can take, they will arbitrarily reclassify those expenses as something else. Specifically, government officials think it would be nicer if insurance companies spent a higher percentage of their revenues on medical care rather than administrative overhead. Without particularly investigating whether this was sound, or even possible, they enacted a rule dictating that the "medical loss ratio" had to be a fairly high percentage of revenues. Predictably, companies are reclassifying administrative expenses as medical in order to make their numbers.Now, maybe this is an example of evil companies struggling to hold onto their profits. But you certainly couldn't prove it by Volsky's post. He seems to confuse administrative overhead with profits, and further seems unaware that overhead (apart from profits) is usually higher when dealing with a lot of small clients rather than a few big ones. He refers to the MLR rules as "one of the few ways to prevent insurers from earning outrageous profits before most of reform's provisions kick in", even though the health insurance industry isn't particularly profitable.
It is true, of course, that profits are part of the overhead targeted by the medical loss ratio rules. But it does not therefore follow, as night to day, that if you raise the percentage of money that you spend on treatment, you lower profits. It certainly doesn't follow that you lower profits the way you want to--by taking money from greedy executives and giving it to nice folks seeking treatment--rather than, say, by forcing companies with high overhead out of the market entirely.