Insurance Medical Loss Ratio: Profit vs. Patient Care

Insurers have proven themselves to be a powerful lobby and maximizing profits is the ultimate goal. Consumer advocates have their work cut out for them on this one.

We spend enormous amounts of money on health insurance premiums, but how much of that goes to actual medial costs? It depends how you define medical costs.

The new health care law requires that insurers spend at least 85 cents out of every dollar in premiums on medical costs for large group policies. That figure falls to 80 cents per dollar for small groups and individual policies.

Expenses that do not relate directly to patient care must come out of the remaining share. Those expenses would include payroll, overhead, advertising, and profits. That’s the medical loss ratio.

Exactly which expenses can be considered as medical and which as administrative or overhead is a giant gray zone. Insurers are lobbying hard to broaden the spectrum of items that fall under patient care.

Is the cost of creating a network of providers an administrative task, or one that directly relates to patient care? Does it benefit the insurer or the patient? Insurers say it is a direct benefit to patient care.

There is a June 1 deadline for state insurance commissioners to submit proposals to the Department of Health and Human Services offering suggestions on how these expenses should be categorized.

Reuters reports that The National Association of Insurance Commissioners (NAIC) says it will respond by June 1, but will take at least another month to deliver a more detailed response.

The new law will require companies not meeting the medical loss ratio to refund the difference to policy holders — a very unpalatable chore if you are a for-profit insurer.

Senator Jay Rockefeller (D-WV), in a May 7 letter to Health and Human Services Secretary Kathleen Sebelius said insurers are “proposing that medical loss ratio information be aggregated in a way that conceals important variations in the health insurance market which would make it easier for insurers to meet the new minimum medical loss ratios… They are eager to classify as many expenses as possible as medical or “quality-improving” expenses, which would also make it easier for them to meet the new minimum medical loss ratios and avoid paying rebates to their policyholders.”

If insurers are successful in reclassifying many administrative expenses as patient care expenses, we’ll all be paying a hefty price.

The new requirements will go into effect on January 1 of next year.

Photo: newsroom.dc.gov

Disclaimer: The views expressed above are solely those of the author and may not reflect those of
Care2, Inc., its employees or advertisers.

Odile M.

5:59AM PDT on Jun 4, 2010

I have a fix to the problem.....
Do what I did....
Marry a Canadian.....

It is GREAT!!!!!!!!!!!!!

The Health Care System in the states SUCK and is all about Profit and GREED!!!!!!!!!!!!!

send a green star

KayL N.

7:28PM PDT on Jun 2, 2010

Let's not forget that insurance -- leastwise in the United States -- is a *business*. If they can't make a profit, there's no reason to stay in business, because they ARE NOT a charity.

Insurance is a gamble for all concerned. You are gambling that you are going to get more paid out in benefits than you pay in premiums over your lifetime. The insurance company is gambling that you are going to pay in more over yourlife than they are going to pay out, that is: they'll make a profit.

If you don't like the profit factor, then you need to turn to some other kind of assured health care than private insurance companies....

5:05AM PDT on May 30, 2010

Informative. Thank you.

Janice P.

5:06PM PDT on May 28, 2010

Laurie H. is right. To even be discussing health care in the same conversation with "profit" is unseemly and cold. You either have ethics and human concern or you do not. As a nation, we have decided that we do not.

Kimberly B.

7:09AM PDT on May 28, 2010

I doubt our government would stand by any of this for the citizens! They are more worried to raise our taxes on everything when we can not afford to buy groceries or gas/cig now at the store. They take so much money and give all the companies a big break. Then insurance companies get away with not paying workers comp for years in Illinois and comes down on the employees. If you get hurt on somebodies property like I did, they get off if they are a company too. Like I am facing with major medicals that need paid and no money to pay for the surgeries!

Our government gets so many kick backs from these insurance companies they won't push it here! They will let it slide under the rug for a few bucks into the campaign fund etc.

Charlene R.

11:36AM PDT on May 27, 2010

To Stan: I love your comment, in a cynical sort of way. You obviously, are a weathly conservative. I really, am not trying to pick on you, but trying to point out that many of us have no idea how difficult it is for many of our citizens. For whom, do you think our system works? For some, it works exceedingly well. The old wheel, so to speak, was manufactured by the insurance and pharmaceutical companies. We need a different manufacturing company, to create a new wheel.

Don't we all love it when, the HAVES, tell the HAVE NOTS, that they are doing just _fine_? When was the last time, most of us spent a month, a week, a day, with a poor working family, the 'unwealthy' elderly, or a mentally challenged (not insane) person?

Some consider us to be the greatest nation on the face of the earth. If you believe in that title, a great deal of responsibility follows. Do we not care about ALL of our citizens, especially those not able (I did not say unwilling) to care for themselves?

Margaret W.

7:42AM PDT on May 27, 2010

Yeah Laurie but that boat trip across to Florida to escape Cuba after medical treatment might not be a whole lot of fun!!!

laurie H.

7:38AM PDT on May 27, 2010

The whole problem is money and greed Americans are hung up on "free interprise and capitalism" which has nothing to do with taking care of everyone only looking out for number one and not caring who gets hurt in the process. I hate to think that i have to even consider leaving my home to move to canada or the uk to get good medical treatment for free. Hek even Cuba has better medical treatment.

Natasha L.

2:32AM PDT on May 27, 2010

The UK & Canada's healthcare systems are different because they focus much more on primary and preventative care. Because people can just go to the doctors/hospital as and when they need it, minor ailments don't snowball into something major. @ Stan - you obviously didn't read ANY comments from the UK when the debate over your healthcare bill was going on. We LOVE the NHS. @ Margaret K - Yes, it does take a bit of a while to get an operation, because we practice social care (NOT socialism SL) which means caring for society as a whole. Because of that things that aren't life threatening or completely incapacitating (yes, I know a knee replacement *is* incapacitating, but not as much as, say, heart replacement) are pushed out for the more urgent ops. In the last decade my immediate family has had:

6 babies (I have 5 siblings)
Double lung transplant
Treatment for infant convulsions
Treatment for high blood pressure
Over 300 Drs appointments (easily)
All free at point of use.

The reason Obamacare won’t work is that it doesn’t place any legal obligation on insurers to pay out. Covering you isn’t the problem, it’s what you are covered for that matters. Which, I’m guessing, is why (apart from the extortionate rates) so many Americans don’t have insurance. They know they’ll be paying for something they can never use.