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The Democratic chairmen of the House and Senate committees that oversaw health reform weighed in this week on an arguably small matter of how the new law was being shaped. But the intrusion has some big implications, not only for what it means to the question at hand, but its foreshadowing of the very political context in which regulatory decisions implementing the new law are likely to be made.

The letter turned on the question of the "legislative intent" when crafting a definition of the federal taxes that could be excluded from calculating the medical loss ratio that insurers will be held to. At issue is a part of the new health law that fixes how much insurers must spend on medical benefits versus administrative costs. The law says that "federal and state taxes and licensing or regulatory fees . . ." should be excluded from the premium revenue number, or the MLR denominator, and thus essentially counted as medical costs.

Earlier this month, an independent group advising HHS gravitated toward a definition that would exclude from the MLR denominator all money spent on federal taxes, save taxes paid on investment gains. The congressional letter--sent to the HHS secretary--says not so fast. The drafters meant to include both federal income taxes and payroll taxes in the denominator of the MLR calculation.

In effect, this means insurers would have to spend even more money on medical expenses to offset every dollar they spend on administrative costs, since the money paid on taxes would now be part of the total pie.

Insurers say this interpretation doesn't follow the plain language of the law and plan to make it a major issue. Regardless, the new definition will leave insurers even more capital constrained--something that would appear to be a self-defeating exercise for Democrats at this stage in the game. After all, the new law already gives Democrats plenty of leverage over insurers, effectively nationalizing the regulation of health insurance and saddling the industry with new mandates, fees, and taxes.

Sticking it to the plans still further doesn't seem to accomplish much additional.

Scott Gottlieb, M.D., is a resident fellow at AEI.

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