First of all, I used 80% as an example, and it is the number for individual and small-group plans which are very common. On the other hand, 85% is the number for large-group plans. However, many plans don't have to follow the MLR at all when they're self-insured employer plans, which are also very common.
Second, your claim about the "perverse inventive" is simply incorrect. The denominator here of the 80 or 85% is premiums, not expenses. There is never any incentive like that to approve more claims above the minimum. Your arithmetic is simply backwards here. This is not a reason for rising healthcare costs.
Third, even if health plans do come in over the legally mandated minimum --let's say it's 85% for one plan, and they come in at 88%, that's often because they're creating a buffer since it's impossible to know perfectly in advance where it will hit by the end of the year. Premiums are known and constant, expenses are unknown and variable.
The basic relationship holds true: the more medical expenses they approve (beyond the MLR when it exists), the smaller their profit margin is.
First of all, I used 80% as an example, and it is the number for individual and small-group plans which are very common. On the other hand, 85% is the number for large-group plans. However, many plans don't have to follow the MLR at all when they're self-insured employer plans, which are also very common.
Second, your claim about the "perverse inventive" is simply incorrect. The denominator here of the 80 or 85% is premiums, not expenses. There is never any incentive like that to approve more claims above the minimum. Your arithmetic is simply backwards here. This is not a reason for rising healthcare costs.
Third, even if health plans do come in over the legally mandated minimum --let's say it's 85% for one plan, and they come in at 88%, that's often because they're creating a buffer since it's impossible to know perfectly in advance where it will hit by the end of the year. Premiums are known and constant, expenses are unknown and variable.
The basic relationship holds true: the more medical expenses they approve (beyond the MLR when it exists), the smaller their profit margin is.