Health Insurance Companies reclassified Administrative Operations as Medical Care

Digital News Report – A report was released today by the US Senate that looked into how commercial health insurance companies spent their money.

The report starts out by saying that the 2009 medical loss ratio results showed a large difference between patient medical spending in the large group plans compared to the individual and small group plans. According to the data provided by the large insurance companies, they spent 15 cents of every dollar for administrative costs and profits on average while individual plans spent 26 cents out of every premium amount received for profiting and administration costs.

In addition to this Wellpoint had “reclassified” over half a billion dollars of administrative expenses to medical expenses. The report points out that the new law would give for-profit insurers the ability to shift some of their administrative expenses to medical expenses.

The medical loss ratio can tell investors if a health insurance company is going to be profitable. To the consumer purchasing the health insurance the lower the number the less benefit for medical expenses paid. When the health insurance company is taking premiums for administrative costs, which include advertising, and profits is is just money spent by the consumer. The Medical loss ratio for UnitedHealth in 2008 was reported to investors as being 82 percent (82 cent out of every dollar toward medical care). In 2009 United Health for Individual plans had a 70.5 percent medical loss ratio. Wellpoint in 2009 for Individual plans was a 74.9 percent medical loss ratio. Humana had the worst medical loss ratio for 2009 Individual plans with only 68.1 percent. The large group insurance plans had the best medical loss ratio for the consumer, except for Cigna in 2008 who had a medical loss ratio of 37.2 percent for the large group insurance plan. Cigna improved in 2009 with a 85.2 percent medical loss ratio for the large group insurance plan.

Congress created a federally required minimum medical loss ratio in the Patient Protection and Affordable Care Act (PPACA) which was the health care reform signed into law. The health insurance companies will be required to meet a minimum loss ratio of 80 percent for individual and small group health insurance plans and 85 percent minimum medical loss ration for the large group health insurance plans.

The problem is that some expenses that were previously reported as administrative cost by the health insurance companies will be able to be reallocated as medical expenses. These reclassified administrative fees include nurses hotline, health and wellness and disease and medical management, and clinical health policy.