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Medical Loss Ratio

Health Insurance has always been presented as a method of sharing risk across large groups so that when catastrophe strikes you are covered. The theory is that premiums create a large pool of money that is used to cover you in the case of need. Conversely your premium is used to help someone else. This of course breaks down as soon as somebody can find a way to get folks who might actually need to use their policy denied benefits. The insurance industry uses rescission, purging, and the latest game, the Medical Loss Ratio.

Medical Loss Ratio is a term that has nothing to do with providing health care, but everything to do with profitability of for profit insurance companies.

Here is a quote from Wendell Potter, who until recently was the Chief PR guy at Cigna, during an interview with Bill Moyer.

WENDELL POTTER: Well, there’s a measure of profitability that investors look to, and it’s called a medical loss ratio. And it’s unique to the health insurance industry. And by medical loss ratio, I mean that it’s a measure that tells investors or anyone else how much of a premium dollar is used by the insurance company to actually pay medical claims. And that has been shrinking, over the years, since the industry’s been dominated by, or become dominated by for-profit insurance companies. Back in the early ’90s, or back during the time that the Clinton plan was being debated, 95 cents out of every dollar was sent, you know, on average was used by the insurance companies to pay claims. Last year, it was down to just slightly above 80 percent.

Here is the Interview Video.
Here is the transcript.

After watching this, you may have a different view on health insurance.

1 comment to Medical Loss Ratio

  • Ken Shumaker

    For-profit health insurance companies have added nothing but costs and aggravation to the American health care system. I worked in health care information systems for 40 years and observed the complications and delays introduced by insurance companies as they drove profits by reducing risk. The “medical loss ratio” was clearly slanted at Wall Street and insurance companies worked diligently to minimize the dollars that went to hospitals, doctors, nurses, therapists, etc. At the same time they produced pain and suffering for healthcare providers, they lined the pockets of executives, built elaborate headquarters, and cultivated Wall Street investors to increase the value of their stock options.

    Even worse than the “Medical Cost Ratio” charade though were the costs forced on hospitals and doctors as they had to add clerical staff to cope with denials, approvals, and the evil machinations of the insurance industry. Another ratio not talked about in the current health care debate is the quadrupling of the clerical staff in hospitals and doctor’s offices to cope with the insurance demands.

    Harder to quantify is the agony of patients and their families as they are bombarded by separate bills and statements from hospital, anesthetist, surgeon, pathologist, radiologist, physical therapist and are forced to learn a new language of co-ordination of benefits, usual and customary charges, co-pays, deductibles, gatekeepers, etc. If a patient is sick when they enter the medical gauntlet, they have a relapse when they exit the health care system and face the scourge of paperwork spawned by our flawed health system.

    The United States needs a universal, nationwide, consistent health system. The Medicare medical loss ratio is higher than for-profit and even non-profit insurers. (A higher percentage of money actually pays for health care.) The government plans have lower costs and less patient and provider aggravation.

    Congress needs (for once) to fight off the lobbying dollars of the insurance companies and put in place a government specified and administered public plan. It is absolutely true that the nationwide public plan will be cheaper than the private insurance plans in the long run. In the short run, however, it may be more expensive as the private insurers dump their sickest and neediest patients on the public plan while milking healthy patients and families for profits. There is no reason for private insurers in health care. There is no reason to have Wall Street profits dominate our two most important industries – health care and education.