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Committee on Commerce, Science, and Transportation
Office of Oversight and Investigations
Staff Report for Chairman Rockefeller
April 15, 2010
Executive Summary
Since August 2009, the Senate Commerce Committee has been investigating how commercial insurance companies spend the billions of dollars of premiums that American consumers pay them every year for health care coverage. One of the basic financial indicators that insurers, investors, insurance commissioners, and policymakers look at to understand how premium dollars are being used is the “medical loss ratio.” This staff report provides an update on the Committee’s investigation, including a review of new 2009 medical loss ratio information that health insurers recently filed with their regulators.
The 2009 medical loss ratio results shows that there continues to be a large disparity between patient medical spending in the large group market, and spending in the individual and small group markets. According to their own data, last year the largest insurers used about 15 cents out of every large group premium dollar for administrative costs and profits, while more than 26 cents out of every premium dollar went to administrative costs and profits in the individual market.
This staff report also discusses the new minimum medical loss ratios that became law as part of the health care reform legislation President Obama signed last month. 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. As this report discusses, the insurance industry is beginning to consider the financial impact of the new minimum medical loss ratio requirements. At least one company, WellPoint, has already “reclassified” more than half a billion dollars of administrative expenses as medical expenses, and a leading industry analyst recently released a report explaining how the new law gives for-profit insurers a powerful new incentive to “MLR shift” their previously identified administrative expenses.
As the National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services (HHS) work to implement the new statutorily required medical loss ratios, they need to make sure that insurers are spending consumers’ premium dollars on delivering health care and improving the quality of this care. 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.
