Why Obamacare will fail

Why Obamacare will fail

Political discussion aside, The Affordable Care Act (ACA) will fail for business reasons. Whether the ultimate result is the law getting repealed or modified, change is necessary to have a viable and vibrant health insurance industry that drives cost reduction and improved customer service.

The fundamental reason the ACA will fail is because it mandates a minimum Medical Loss Ratio (MLR). MLR is the percentage of premiums paid out to cover health care expenses. When this law came into effect, many American’s thought mandating MLR was good because it guaranteed a minimum level insurance companies would pay to cover health care costs. However, the unintended consequences are having the opposite effect.

The problems associated with mandating MLR are two-fold: 1) incentivizing the insurance industry to become less efficient; 2) contributing to the elimination of new insurers entering the market and increasing the level of competition.

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