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Senate Panel: Insurers Spending Too Much on Overhead

Janice Simmons, for HealthLeaders Media, April 19, 2010

Health insurers' medical loss ratios (MLR) in many markets are still falling far below the minimum levels of what they will need to spend under health reform signed into law last month by President Obama.

These new medical-loss ratio floors go into effect on Jan. 1, 2011, according to a new report released by Sen. Jay Rockefeller (D-WV), chairman of the Senate Commerce, Science, and Transportation Committee.

Under new legislation, health insurers will be required to spend at least 80 cents out of every premium dollar in the individual and small group markets and at least 85 cents in the large group market.

"Making sure health insurance companies spend more of the money they collect from premiums on actual medical care was a key component of healthcare reform," Rockefeller said in a statement.

The Senate Commerce Committee investigation began in August 2009. The committee staff report included a review of recently filed 2009 medical loss ratio (MLR) information and highlights health insurance companies' new efforts to "reclassify" their administrative expenses as medical expenses in the wake of healthcare reform.

The report also noted that the 2009 medical loss ratio results showed that the largest for profit health insurers were spending too much of consumers’ premium dollars on administrative costs and profits.

For instance, in the individual healthcare market, the largest health insurers spent on average more than 26 cents out of every premium dollar on administrative costs and profits. And, in some individual markets, insurers were spending more than one-third of premium dollars on non medical expenses.

Also, the staff report noted how the insurance industry was beginning to consider the financial impact of the new federally required MLR requirements—including some questionable changes in their accounting practices. For instance, WellPoint had "reclassified" more than half a billion dollars of administrative expenses as medical expenses, it said.

The report also cited an industry analyst explaining why for profit insurers may attempt to satisfy consumer protections in the law through an "MLR shift"—or by reclassifying previously identified administrative expenses as medical expense to create the appearance of a higher MLR.


Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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