A look at insurance companies’ profits and losses and recent legislation to cap medical loss ratio minimums at 80% to 85%.
Editor's Note: To see larger images of the table and figure in this article, please see the .PDF posted above.
When we discuss healthcare reform, everybody focuses on increased expenditures spent on hospital care and diagnostic testing and then reaches the usual conclusion that fee-for-service care is not efficient and our system cannot be sustained. However, nobody talks about the percentage of money spent or NOT spent on medical care by third-party payers. Do you know what the term used for the money spent for medical care is?
Medical Loss Ratio
Isn’t it ironic that money collected for spending on medical care is considered medical loss by third-party payers? Remember that this is the money that insurance companies are not keeping for profit — therefore, they call it “medical loss ratio” (MLR).
Let’s take a look at this amount.
Medicare programs have recently spent 97% on medical benefits, so their medical loss is 97%.1,2,3
On the other hand, insurance companies’ average medical loss ratio has decreased from 95% in 1995 to 81% in 2007.2,4 Hence, the profits have gone up. There are even reports that medical loss ratio can be as little as 60% of the premium collected by some insurance companies.2,4,5
The fourth quarter earnings in 2010 for the top publicly traded insurance companies increased by an average of 21%. Humana announced that it will start paying quarterly dividends due to “lower than expected medical bills.” We all know how to accomplish “lower than expected medical bills.” In my world, Humana stopped paying for the excision of atypical nevi. Who knows what other medical services they have stopped paying for in other specialties.
Is There Anything to be Done About MLR?
Most European countries limit MLR by 95%, which means that insurance companies that are in the healthcare business are limited by a profit of 5% of the collected premiums. Hence, they have to spend 95% of the collected premiums on healthcare.
Unfortunately, there is no law that regulates MLR in the United States, as you can see in Table 1 and Figure 1.2,6 If government can dictate to healthcare providers how much they can charge by regulating Medicare payments, then why can’t they do the same for insurance companies?
Table 1 (left): Medical Loss Ratio (MLR) Data for Largest Health Insurers in Selected States, 2008*
Figure 1 (right): Medical Benefit Ratios of Private Insurers, Public Medicare Plan, 1993-2007
Editor's Note: Please click on the image to see a full-size picture.
Actually, the Patient Protection and Affordable Care Act discussions include limiting MLR to 90%. However, insurance company lobbyists were able to influence Congress and the final law capped an MLR minimum of 80% to 85%.3 Can you guess where the lobbyists’ money came from?
Dr. Kircik is an Associate Clinical Professor of Dermatology at Indiana University Medical Center. His is also the Medical Director of Derm Research, PLLC, and Physicians Skin Care, PLLC, in Louisville, KY.
Disclosure: Dr. Kircik has no conflicts of interest to report in relation to the content of this column.
A look at insurance companies’ profits and losses and recent legislation to cap medical loss ratio minimums at 80% to 85%.
Editor's Note: To see larger images of the table and figure in this article, please see the .PDF posted above.
When we discuss healthcare reform, everybody focuses on increased expenditures spent on hospital care and diagnostic testing and then reaches the usual conclusion that fee-for-service care is not efficient and our system cannot be sustained. However, nobody talks about the percentage of money spent or NOT spent on medical care by third-party payers. Do you know what the term used for the money spent for medical care is?
Medical Loss Ratio
Isn’t it ironic that money collected for spending on medical care is considered medical loss by third-party payers? Remember that this is the money that insurance companies are not keeping for profit — therefore, they call it “medical loss ratio” (MLR).
Let’s take a look at this amount.
Medicare programs have recently spent 97% on medical benefits, so their medical loss is 97%.1,2,3
On the other hand, insurance companies’ average medical loss ratio has decreased from 95% in 1995 to 81% in 2007.2,4 Hence, the profits have gone up. There are even reports that medical loss ratio can be as little as 60% of the premium collected by some insurance companies.2,4,5
The fourth quarter earnings in 2010 for the top publicly traded insurance companies increased by an average of 21%. Humana announced that it will start paying quarterly dividends due to “lower than expected medical bills.” We all know how to accomplish “lower than expected medical bills.” In my world, Humana stopped paying for the excision of atypical nevi. Who knows what other medical services they have stopped paying for in other specialties.
Is There Anything to be Done About MLR?
Most European countries limit MLR by 95%, which means that insurance companies that are in the healthcare business are limited by a profit of 5% of the collected premiums. Hence, they have to spend 95% of the collected premiums on healthcare.
Unfortunately, there is no law that regulates MLR in the United States, as you can see in Table 1 and Figure 1.2,6 If government can dictate to healthcare providers how much they can charge by regulating Medicare payments, then why can’t they do the same for insurance companies?
Table 1 (left): Medical Loss Ratio (MLR) Data for Largest Health Insurers in Selected States, 2008*
Figure 1 (right): Medical Benefit Ratios of Private Insurers, Public Medicare Plan, 1993-2007
Editor's Note: Please click on the image to see a full-size picture.
Actually, the Patient Protection and Affordable Care Act discussions include limiting MLR to 90%. However, insurance company lobbyists were able to influence Congress and the final law capped an MLR minimum of 80% to 85%.3 Can you guess where the lobbyists’ money came from?
Dr. Kircik is an Associate Clinical Professor of Dermatology at Indiana University Medical Center. His is also the Medical Director of Derm Research, PLLC, and Physicians Skin Care, PLLC, in Louisville, KY.
Disclosure: Dr. Kircik has no conflicts of interest to report in relation to the content of this column.
A look at insurance companies’ profits and losses and recent legislation to cap medical loss ratio minimums at 80% to 85%.
Editor's Note: To see larger images of the table and figure in this article, please see the .PDF posted above.
When we discuss healthcare reform, everybody focuses on increased expenditures spent on hospital care and diagnostic testing and then reaches the usual conclusion that fee-for-service care is not efficient and our system cannot be sustained. However, nobody talks about the percentage of money spent or NOT spent on medical care by third-party payers. Do you know what the term used for the money spent for medical care is?
Medical Loss Ratio
Isn’t it ironic that money collected for spending on medical care is considered medical loss by third-party payers? Remember that this is the money that insurance companies are not keeping for profit — therefore, they call it “medical loss ratio” (MLR).
Let’s take a look at this amount.
Medicare programs have recently spent 97% on medical benefits, so their medical loss is 97%.1,2,3
On the other hand, insurance companies’ average medical loss ratio has decreased from 95% in 1995 to 81% in 2007.2,4 Hence, the profits have gone up. There are even reports that medical loss ratio can be as little as 60% of the premium collected by some insurance companies.2,4,5
The fourth quarter earnings in 2010 for the top publicly traded insurance companies increased by an average of 21%. Humana announced that it will start paying quarterly dividends due to “lower than expected medical bills.” We all know how to accomplish “lower than expected medical bills.” In my world, Humana stopped paying for the excision of atypical nevi. Who knows what other medical services they have stopped paying for in other specialties.
Is There Anything to be Done About MLR?
Most European countries limit MLR by 95%, which means that insurance companies that are in the healthcare business are limited by a profit of 5% of the collected premiums. Hence, they have to spend 95% of the collected premiums on healthcare.
Unfortunately, there is no law that regulates MLR in the United States, as you can see in Table 1 and Figure 1.2,6 If government can dictate to healthcare providers how much they can charge by regulating Medicare payments, then why can’t they do the same for insurance companies?
Table 1 (left): Medical Loss Ratio (MLR) Data for Largest Health Insurers in Selected States, 2008*
Figure 1 (right): Medical Benefit Ratios of Private Insurers, Public Medicare Plan, 1993-2007
Editor's Note: Please click on the image to see a full-size picture.
Actually, the Patient Protection and Affordable Care Act discussions include limiting MLR to 90%. However, insurance company lobbyists were able to influence Congress and the final law capped an MLR minimum of 80% to 85%.3 Can you guess where the lobbyists’ money came from?
Dr. Kircik is an Associate Clinical Professor of Dermatology at Indiana University Medical Center. His is also the Medical Director of Derm Research, PLLC, and Physicians Skin Care, PLLC, in Louisville, KY.
Disclosure: Dr. Kircik has no conflicts of interest to report in relation to the content of this column.
Table 1 (left): Medical Loss Ratio (MLR) Data for Largest Health Insurers in Selected States, 2008*
