Medical insurance companies playing games with the numbers

medical insuranceStarting in 2011, medical insurance companies will have to meet new rules on profitability. They will need to spend at least 85% of dollars collected in premiums for the large group market on medical care and at least 80% of premiums collected in the individual and small business group market on medical care.

Most are not meeting these goals, especially in the individual health insurance marketplace -- and some are starting to reclassify expenses so they don't have to pay a rebate to consumers in 2011.

Based on a study by the Oversight and Investigations staff of the Senate Committee on Commerce, Science and Transportation, at least one company, Humana, spent only 68.1% of the premiums it collected from individuals in 2009 on medical spending. The committee staff prepared the report for its chairman, Sen. John D. Rockefeller IV (D-WV). Humana has the worst record, but others that fall below the required 80% in the individual marketplace include Aetna (75.7%), Coventry (71.9%), UnitedHealth (70.5%), and WellPoint (74.9%).
The way the new law works is that any shortfall on this medical spending, known in the insurance world as the medical loss ratio (MLR), must be rebated back to the consumers who paid the premiums. As the committee staff explained in its report, "The goal of the medical loss ratio provision of the new health care law is to make sure that consumers get the full benefit of the health care premiums they pay insurers."

But at least one insurer, WellPoint, already told investors that it's playing with the numbers. The committee staff reported that during a recent investor call, "WellPoint executives announced that the company has started 'reclassifying' certain expenses that the company had traditionally classified as administrative expenses."

These included expenses for a nurse hotline, health and wellness including disease management and medical management, and clinical health policy. By reclassifying these expenses as medical benefits, "the executives projected that WellPoint's 2010 medical loss ratio ... would increase by 170 basis points or 1.7%." You can be sure that WellPoint and other insurance companies are looking for other reclassifications as well so they can avoid having to rebate consumers in 2011 and can keep their profits.

Right now the National Association of Insurance Commissioners and the Department of Health and Human Services are working on new rules for medical loss ratios "to make sure that insurers are spending consumers' premium dollars on delivering health care and improving the quality of care." The committee staff added, "Boosting medical loss ratios through creative accounting will not fulfill the new law's goal of helping consumers realize the full value of their health insurance payments."

Mandating that insurers meet certain medical loss ratio requirements is not new to the industry. Many states specify a minimum that must be spent on medical care. For example, the state of New Jersey requires all insurers selling individual health policies in the state to maintain a medical loss ratio of 80% or higher. But, having a federal mandate is new to the health insurance industry.

The committee cited a report by health care industry analyst Carl McDonald of Oppenheimer & Co., who "predicts that companies will review their current spending and attempt to shift as many expenses as possible from administrative to medical." For example, McDonald expects a shift of as much as 5% from administrative to medical care to meet the targets of the new law, rather than have to rebate consumers.

Clearly the House, Senate, and federal government have to keep a close watch on this game playing with the numbers. And if the Republicans trying to kill this law are unsuccessful, all Americans can see more of their hard-earned health care premium dollars going to actual medical care or being rebated to them.

Lita Epstein has written more than 25 books, including "The Complete Idiot's Guide to Social Security and Medicare" and "The Pocket Idiot's Guide to Medicare Part D."
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