There was a time, in the early 1990s, when health insurance companies devoted more than 95
cents out of every premium dollar to paying doctors and hospitals for taking care of their members. No more. Since President Bill Clinton's health reform plan died 15 years ago, the health insurance industry has come to be dominated by a handful of insurance companies that answer to Wall Street investors, and they have changed that basic math. Today, insurers only pay about 81 cents of each premium dollar on actual medical care. The rest is consumed by rising profits, grotesque executive salaries, huge administrative expenses, the cost of weeding out people with pre-existing conditions and claims review designed to wear out patients with denials and disapprovals of the care they need the most.
This equation is known as the medical loss ratio (MLR), an aptly named figure that is widely seen by investors as the most important gauge of an insurance company's current and future profitability. In a private health insurance industry that collected $817 billion this year, a 14 percentage point difference in the MLR represents $112 billion a year! Over 10 years, that would be more than enough to pay for health reform.
Thanks to the efforts of several senators who pushed for a minimum MLR to be included in reform legislation, the current Senate bill requires insurers to provide an annual rebate to each enrollee if non-claims costs exceed 20% in the group market and 25% in the individual market.
Sen. Al Franken (D-Minn.) is now leading a group including Sens. Jay Rockefeller (D-W. Va.) and Blanche Lincoln (D-Ark.) to introduce an amendment that would go further by requiring that 90 percent of the money consumers spend on health insurance premiums go directly to health care costs.
The senators are proposing a reform that strikes at the heart of a health insurance system that puts profits first, and it would have a profound effect. When MLRs increase, that eats into profits, and Wall Street becomes very unhappy. A case in point is Aetna, the nation's third largest publicly-traded health insurance plan. Three years ago, the company reported that its quarterly MLR had inched up from 77.9 percent to 79.4 percent in 12 months. On the day this was disclosed, Aetna's share price plunged 20 percent as investors sold off their shares, reducing the company's market value by billions of dollars.
Wall Street investors expect insurers to pay as little as possible for medical claims. As a result, the nation's health insurance industry has evolved into a cartel of huge for-profit companies that together reap billions of dollars a year at the expense of their policyholders. The seven largest firms -- UnitedHealth Group, WellPoint, Aetna, Humana, CIGNA, Health Net, and Coventry Health Care -- enroll nearly one in three Americans in their health insurance plans. This year the industry will take about $25 billion in profits for getting between American patients and their doctors, according to the industry's trade group.
And they do this by finding every excuse in the book not to pay a claim, even if it means
canceling individual policies when people get sick or ridding their rolls of unprofitable small business group policies if an employee or family member falls seriously ill. They issue confusing benefit statements to members so only highly motivated and persistent challengers of their denials stand a chance of reversing an unfair decision. And in the final analysis, when an insurance company has decided it no longer can make enough profit on a particular person or employer-sponsored group, it drives them away in a process known as "purging." In this unconscionable profit-protection maneuver, an insurer will hike premiums so high that the policyholder has no choice but to pay outlandish rates for what may be a reduced benefit package, find another insurer, or simply go without coverage. The consequences of such decisions can be deadly -- but Wall Street always has the last word when profits are the main consideration.
When Wall Street isn't calling the shots, the outcome is decidedly better for health care consumers. Government-operated plans, such as Medicare, and some organizations that provide coordinated care, consistently maintain higher medical loss ratios. Kaiser had a 90.6 percent MLR in 2007. Between 1993 and 2007, Medicare's MLR hasn't dropped below 97 percent.
The health care reform bill now being debated in the Senate must include a provision, such as that proposed by Sen. Franken, that sets a minimum medical loss ratio to keep insurers from gouging consumers and leaving patients without the care they need. Instead of being a formula to reward investors, a properly regulated medical loss ratio in combination with other cost containment measures in the legislation would be a reliable tool for keeping insurance company profits and administrative waste in check.
Follow Wendell Potter on Twitter: www.twitter.com/wendellpotter
If the ratio used to be over 95% before and if Medicare is over 95% now, then why not have the ratio be 95% or more again? Why have for-profit insurance at all?
90% is not really reform. The insurance companies will easily move themselves to the 90% ratio without reducing their gargantuan profits or bloated executive pay one iota by simply increasing premiums.
This will be especially easy for them because (1) they will be able to charge anything they want and (2) tens of millions of Americans will be forced by law to buy their unreliable, claim-denying for-profit insurance, under heavy tax penalty if they don't, with no cost controls, competition or choice of Medicare or other robust public option.
This is just as much an illusion of reform as the Medicare buy-in for 55-64, which just takes away the people the for-profit insurance companies didn't want to insure anyway and dumps them on the public sector.
Not one single more patient will be able to have access to the health care that they need when they need it because of this.
The short answer is unregulated business. With no anti trust laws, corporations must compete to survive. Not compete to produce an actual product that produces wealth, but to compete for financial control of other companies, with the end product being a monopoly free of competitors.
An unfortunate byproduct of the business model is accumulation of immense wealth which enables them to purchase anything that is on the market - in this case the U.S. government. Our congressional representative hate to admit they prostitute themselves for money. One solution is to split up into teams so each side can blame the other. It is contrary to our form of government. But who wants to admit what they do behind closed doors? The r's come on like the Marines and the d's are the perenial wusslefeather victims. C-SPAN is the circus. Wall Street takes the bread.
It does not matter which side one picks. Both are designed to fail.
I certainly shop for charities that way. Letting people vote with their feet seems better than having government say "you must do this" and "you can't do that".
PS: the great 97% MLR from Medicaid comes from creative accounting: many admin costs are off-loaded onto the books of private insurers who provide the Medicare advantage plans.
http://www.youtube.com/watch?v=9QkgUkM0o6Q
This bill sounds good, but in reality it would be a huge negative for the country as a whole.
If you look at the administrative costs of Medicare, for example, they are roughly 5-6% when you include all of the in-kind services provided by other government programs, such as the IRS serving as the collection agency.
And then on top of that, we know that at least 10% more money goes toward outright fraud, and is never recouped.
So, the "Medicare model" seems to be about paying out money with few strings attached, and not asking questions. The value private insurers can provide comes from their ability to root out fraud and deny harmful and unnecessary procedures. If the government imposes a straight jacket of 90% MDL on them, they will not be able to add that value any longer.
When Medicare and other government programs blindly fund harmful and unnecessary procedures, and blindly fund fraudulent claims, it drives UP the cost of health care for everyone in the country. When private insurers root out fraud and unnecessary procedures, it drives DOWN the cost of health care for those paying the premiums, and for the country as a whole.
Dems have shown no interest whatsoever in making health care less expensive, and this bill would again be a step in the wrong direction.
If you watched PBS's excellent "Sick Around the World" documentary you would see that there are many differing successful models around. I experienced privately run health care in Germany and it worked great.
The common thread of all these systems:
* Health care is a basic right for all
* It is imoral to profit from basic health care needs
The common denominator of all the various successful systems around the world is strong regulation. Profits are regulated out of the system. Private companies are regulated into behaving with the interests of their customers - the sick - in mind.
The way to get congress to support this weak appology of a public option now being offered is to introduce strong regulation of the PRIVATE health insurance industy. Not just MLR but eliminate profits altogether from basic care policies. Enhanced care (private hospital rooms, cosmetic surgery etc.) can continue to be offered at enormous profit, as happens in the UK, Germany and even Medicare add on private policies here in the USA. This would allow the insurance industry to survive without threatening basic care for all of us.
Many are solely focused on greed that I acknowledge exists, however, add up all those dollars in greed relative to healthcare, then eliminate it, and it still doesn't push the needle down much on a relative per capita cost basis. This is why the CBO isn't slashing the per capita costs based on the current legislation being proposed. The government would need to add billions in heads to manage a government system. These people get paid and generally end up being lifers no matter what quality or ineptness they bring to the table.
The governments current bill gives up on bringing per capita costs down, pegging out at $7300 yr average per individual, higher than it is today. Legislation was supposed to bring health care costs down, remember that?
Yes things can be fixed, yes there's greed; with insurance, politicians, providers, just go down the list. But somehow this debate got focused on insurance and the less read now only see one slice of a problem that really isn't insurance centric.
Medicare not looking for ways to pay honest claims? What do you think could have been done with the couple hundred billion or so lost every year in medicare fraud.
Governments legislation is based on a premise of cleaning up this fraud. Doesn't anyone stop to ask why not now? It's a complete red herring
You apparently didn't read, or simply dismiss the opinion of Mr. Potter...a former VP at insurance giant Cigna. What equivalent expertise do you bring to this discussion?