Senate Pressing Insurers on the Amount of Premiums They Spend on Care

[dtotire]

By REED ABELSON
Published: November 2, 2009

The health insurance industry likes to cite figures showing that 87 cents of every dollar in premiums is spent on medical claims.
But a new Senate analysis suggests that for-profit insurance companies are spending much less than that, especially for policies sold to individuals and small businesses. Instead, as little as 66 cents of each dollar paid in premiums goes toward doctor and hospital bills, while the rest covers administrative expenses, marketing and company profits,according to the analysis.

The data come from an analysis of regulatory filings by the Senate Commerce Committee from the largest for-profit companies, including WellPoint, the UnitedHealth Group, Aetna and Cigna. They spent about 74 cents out of every dollar on medical care in the individual market, according to the information released by Senator John D. Rockefeller IV, the West Virginia Democrat, who is chairman of the commerce committee.

The insurers “need to tell us how they are spending their customers’ money,” Mr. Rockefeller said in a statement he released on Monday along with the committee’s analysis. “Are they spending it to make people well when they are sick and keep them healthy?” he asked. “Or is the money they charge going to profits, to executive salaries, and to figuring out how to deny care to people when they really need it?”


The question of how much money insurers should spend paying medical claims is part of the health care debate in Congress. The legislation that may reach the House floor later this week would initially require insurers to spend at least 85 cents of every dollar in premiums on medical claims. Mr. Rockefeller said he planned to push for similar standards in the final legislation the Senate was now trying to merge from two separate bills.

The percentage of premiums spent on medical claims is known in industry jargon as the “medical loss ratio.” According to the Senate analysis, the for-profit insurers’ average ratio in 2008 was 84 percent in policies offered to large employers, and 80 percent for small employers — those businesses with 50 or fewer workers.

Individuals and small businesses have long complained they get less value for their money. But insurance companies generally do not disclose how much they spend in different segments of the market. The Senate analysis of the figures does not include information from California, because that state’s filings are not available through the National Association of Insurance Commissioners.


In a letter containing the analysis sent to one of the insurers, Cigna, on Monday, Mr. Rockefeller accused the company of not fully disclosing its spending to regulators.

“I believe insurers have an obligation to use consumers’ premium dollars in a way that maximizes the benefit to their policyholders,” he wrote. “I also believe that consumers have the right to know what insurance companies are doing with their money.”

He wrote that Cigna “appears to have flouted these requirements and made it more difficult for regulators and consumers to hold you accountable for your conduct.”

A Cigna spokesman said that the insurer was looking into the senator’s concerns, but that it had already provided Mr. Rockefeller with information that indicated it spent 93 cents out of every dollar it collected from individuals on medical claims. “Cigna always strives to submit its state insurance regulatory filings timely, accurately and in the manner required by state regulators,” the company said in a statement.

Mr. Rockefeller, in his letter, said that an individual shopping for a health insurance policy would benefit from information about the relative value of the plans available, just as someone purchasing a car finds information about gas mileage helpful in choosing models.

The insurance industry’s trade group, America’s Health Insurance Plans, said Monday that the 87-cent figure it cited as the industry average was based on information collected by the federal government and was an accurate reflection of how much of each dollar in premiums was spent on medical claims.

The group supports widespread disclosure of these ratios but said it was opposed to legislation that would require insurers to spend a specific amount on medical claims. And a spokesman for the group argued that the figures were not a measure of how efficient or effective an individual health plan might be.

“Having these arbitrary caps will undermine other reform efforts to improve patient care and cut health care costs,” including disease management programs and spending on technology that could not be counted toward medical claims spending said the spokesman, Robert Zirkelbach.

In his statement, Mr. Rockefeller said the committee’s analysis “reveals that while health care costs are spiraling upwards, consumers are paying more and getting less, and the insurance industry doesn’t want anyone to know what they are up to.”



http://www.nytimes.com/2009/11/03/business/03insure.html?ref=us