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Sen. Rockefeller explains:
"One of the basic financial measures used in the health care industry is the percentage of health insurance premiums that insurers use to provide health care to their customers. This percentage is commonly known as the "medical loss ratio." For example, if an insurer uses 75 cents out of every premium dollar to pays its customers' medical claims, the company has a medical loss ratio of 75 percent. A medical loss ratio of 75 percent indicates that the insurer is using the remaining 25 cents of each premium dollar to pay expenses that do not directly benefit policyholders, such as salaries, administrative costs, advertising, agent commissions, and profits."
The insurance giants argued that medical loss information is "proprietary" and "business sensitive." So Rockefeller asked the Senate Commerce Committee to investigate. The committee concluded, by examining premium and claims data reported to the National Association of Insurance Commissioners, that the medical loss ratio is significantly lower than the industry would have them believe.
Reed Abelson of the New York Times reports that in 2008, the for-profit average medical loss ratio was 84 percent in policies offered to large employers and 80 percent in policies offered to small businesses. In the individual market, there was an average medical loss ratio of 74 percent. Rockefeller specifically accuses CIGNA of breaking the law and inaccurately reporting information to the NAIC -- they had claimed a medical loss ratio of 93 percent.
The Senate analysis shows that the health insurance industry "provided one set of premium-benefit numbers to the public and to Congress, and presented a different one to their investors." The letter says that America's Health Insurance Plans' (AHIP) claim that the industry spends 87 cents of every premium dollar on medical care was part of an "expensive public relations effort." The publicly-traded health insurers' own financial reporting to the Securities and Exchange Commission does not come close to supporting the figure -- see page 7 of the letter to CIGNA for the individual breakdown.
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