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WellPoint, others may need relief from law's spending mandate

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The U.S. health overhaul’s mandate that insurers spend 80 percent of premiums on medical care may need to be loosened to keep companies from abandoning the market for people who buy coverage on their own, state regulators said.

Lowering the requirement in some states “may be desirable” at least until 2014, when other provisions in the health-care law will make it easier to find insurance, according to a draft report released Monday by the National Association of Insurance Commissioners. The group of state regulators is expected to send a final recommendation on the rules to U.S. officials by June 1.

The health law passed by Congress in March will force insurers, led by Indianapolis-based WellPoint Inc. and Aetna Inc. of Hartford, Conn., to give rebates to customers next year if companies don’t meet the medical-spending minimums. The commissioners’ draft report said the rule may be too strict for some individual policies, where marketing and administrative costs tend to be higher.

The disruption would depend on “the extent to which issuers would be unable or unwilling to meet the standards, and would therefore withdraw from the market and terminate existing policies,” the memo said. “In the worst case, this could lead to a lack of available coverage.”

Starting in 2014, insurance companies will be banned from denying customers based on their health, and states will open online “exchanges” to assist consumers in buying policies. Until those provisions begin to assist buyers, reducing the medical-cost requirement “in many states” may be the best solution, the report said.

The health-care legislation allows for the suspension of the 80 percent standard if it would destabilize the individual insurance market. The U.S. Department of Health and Human Services is expected to propose the final regulations later this year.

The memo, written by Rick Diamond, an actuary with the Maine Bureau of Insurance, said most insurers will meet the requirement for large- and small-group policies. Compliance will be easier because the law lets companies subtract state taxes on premiums while including as medical costs a range of “activities that improve health-care quality,” the memo said.
 

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  1. Apologies for the wall of text. I promise I had this nicely formatted in paragraphs in Notepad before pasting here.

  2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

  3. Clearly, there is a lack of a basic understanding of economics. It is not up to the company to decide what to pay its workers. If companies were able to decide how much to pay their workers then why wouldn't they pay everyone minimum wage? Why choose to pay $10 or $14 when they could pay $7? The answer is that companies DO NOT decide how much to pay workers. It is the market that dictates what a worker is worth and how much they should get paid. If Lowe's chooses to pay a call center worker $7 an hour it will not be able to hire anyone for the job, because all those people will work for someone else paying the market rate of $10-$14 an hour. This forces Lowes to pay its workers that much. Not because it wants to pay them that much out of the goodness of their heart, but because it has to pay them that much in order to stay competitive and attract good workers.

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