Medical Loss Ratio and other Confusions

A revealing phrase: “Medical Loss Ratio,” is the health insurance industry’s jargon for percentage of premiums spent on medical claims. The critical word “loss” amounts to a negative self-perception of the industry’s mission. The rest of the money they acquire from you and me is spent on “administrative” costs such as negotiating with providers such items as approval for tests, operations, referrals, the cost of billing, and employee salaries, bonuses, marketing, and company and shareholder profits. This overhead has long been reported by many authorities-and companies- to be around 15%, supposedly leaving 85% of your health care costs, their medical loss ratio, to pay your medical, hospital, drug, and other health-related bills.

But a new Senate analysis suggests that for-profit insurance companies are spending much less than that on patient care, especially for policies sold to individuals and small businesses. According to the New York Times, 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.

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, chairman of the commerce committee.

But according to this source, Medicare’s claim that their overhead costs are only 2%-5% is clearly disingenuous since they do not count the (unknown) cost of all the Government unfunded mandates, rules, and regulations on medical providers, let alone insurers. This paper empire imposes huge costs, which of course are passed on to patients and taxpayers. But then so do the insurance companies impose regulatory costs-theirs and the Government’s. These too are passed on to patients (and taxpayers.) The total cost of all this federal regulation is unknown and probably impossible to calculate.

Still, as Senator Rockefeller said in a recent statement, the insurers “need to tell us how they are spending their customers’ money. 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?”

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