Healthcare Reform: When Are Health Insurance Premiums Not Health Insurance Premiums? The Medical-Loss Ratio Debate

The new healthcare reform rule that health insurers must spend 80 cents out of each health insurance premium dollar on patient care may seem like common sense to most people (otherwisel why are we spending money on skyrocketing health insurance premiums if not to be taken care of?), but a fierce debate is now raising some mind-bending questions about what seemed like non-issues a few months ago: What actually should count as patient care? And what is included in health insurance premiums anyway?

It may all seem like opaque semantics to most consumers, but healthcare reform has made those terms more critical to health insurers’ bottoms lines than ever, and the health insurance lobby is working furiously to try to maintain as much of an advantage as they can. As The New York Times reports:

The law requires health insurers to spend at least 80 cents out of every dollar they collect in premiums on the welfare of patients, a critical issue for the companies’ bottom lines.

But state regulators are only now deciding what precisely that means, as they draft the rules to enact the law. WellPoint, which operates Blue Cross plans in more than a dozen states, wants to include the cost of verifying the credentials of doctors in its networks. Insurance companies like Aetna argue that ferreting out fraud by identifying doctors performing unnecessary operations should count the same way as programs that keep people who have diabetes out of emergency rooms.

Some insurers even insist that typical business expenses — like sales commissions for insurance agents and taxes paid on investments — should not be considered part of insurance premiums, which would make it easier for them to meet the 80-cent minimum.

The calculation of what is called the medical-loss ratio is crucial to insurance companies, because the law requires them to refund money to consumers if they spend too much on administrative costs.

But consumer advocacy groups and others see the insurers’ proposals and their lobbying for a more expansive definition of what would be permitted as an effort to water down the law by including too many administrative costs under the umbrella of patient care. “A lot of what they are hoping to shift over there does not — and should not — qualify to improve an individual policyholder’s quality of care,” said Wendell Potter, a former insurance executive who now is critical of the industry and represents consumers in the discussions with state regulators.

For Insurers, Fight Is Now Over Details

Not sure how the patient care/health insurance premium ratio (called the “medical-loss ratio”) matters? Don’t forget that Anthem Blue Cross was forced to withdraw mammoth proposed health insurance premium hikes in California which would have raised health insurance premiums by as much as 39% when independent actuarial review showed that the proposed health insurance premiums did not meets California’s requirement that 70 cents on each health insurance premium dollar be spent on patient care. (Wellpoint is the parent company of Anthem Blue Cross.) You can be sure that the health insurers will be fighting hard on this one.

What do you think should be counted in the medical-loss ratio? Tell us about it at the MyHealthCafe.com Forums.

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3. Healthcare Reform: Rules Regarding Adult Children and Health Insurance Finally Issued
4. Healthcare Reform: President Obama Reminds the Health Insurance Industry that the Federal Government is Watching
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