Florida’s push for specific waiver in health-care law could have big implications

A seemingly obscure regulatory battle in Florida could upend efforts to implement health-care reform nationwide.

At issue is a regulation requiring insurance companies to spend at least 80 percent of premiums on medical costs. Florida, a swing state with voters skeptical of the health-reform law, is pushing back. The state wants the Obama administration to waive the spending requirement for Florida insurers, a move that critics say would roll back a crucial consumer protection in the health-reform law.

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A look at how the law got to the Supreme Court and the issues in play

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Officials in Florida, where one in five people is uninsured, say the waiver is essential to keep insurers from packing up and moving their business out of state.

For many, the Florida waiver is a litmus test of how aggressively the Obama administration will implement the law, especially in a state that’s hostile to it. If the waiver is approved, “It says anything goes,” says Ethan Rome, director of advocacy group Health Care for America Now, which has called for a public hearing on Florida’s request.

Moments after Congress passed the health-reform law in March 2010, Florida established itself as chief objector. It is leading the 26-state lawsuit challenging the law, which the Supreme Court will hear in its coming term. Gov. Rick Scott (R) has refused to accept nearly all federal funds from the Obama administration’s signature achievement.

Florida voters overwhelmingly dislike the law. This is especially true for the key demographics that the Obama campaign will likely target come 2012: 65 percent of seniors and 62 percent of independents oppose the health overhaul, according to a Mason-Dixon poll last year.

Until the election is over, the administration has really got to be cautious about confronting governors who don’t want to cooperate,” says Robert Blendon, a professor of health policy and political analysis at the Harvard School of Public Health. “In Florida, you’re looking at a swing state where many seniors are concerned and the governor is strongly opposed.”

Florida’s latest push-back to health reform centers on a regulation on how insurers spend their money, called the medical loss ratio. Starting this year, at least 80 percent of premiums must go toward medical costs. The other 20 percent can go to administrative costs and profits. If insurance companies spend less on medical costs, the difference will go back to consumers as a rebate.

Insurance plans usually operate with a thin profit margin, hovering at 2 or 3 percent. Administrative costs, for advertising and billing, can add up: A 2009 report from the Commonwealth Fund found health plans spend between 15 and 40 percent of premiums just on administering the plan. Faced with the prospect of lower earnings, health plans are left weighing their options: Restructure their business plans or pull out of the market altogether and look for business in more lucrative lines of insurance such as life or property.

“Every meeting I’m in with insurance plans, they’re building scenarios and calculating their risks,” says Paul Keckley, director of the Deloitte Center on Health Solutions. “You look at their earning statements, and you understand why they’re saying ‘80 percent is a challenge for us.’ Unless forced, they may not play.”