Calculation of “Medical Loss Ratios” – How Much of Your Insurance Premium Should go to Health Care Costs?

A New York Times editorial documents the next health insurance battleground: medical loss ratios, the amount of premiums spent on patient care as opposed to administrative costs and profits. See “The Gaming Begins.”

The federal health reform legislation mandates that by 2011 health insurers must spend 80 to 85 percent of premiums on medical services or activities that improve the quality of care. The legislation, however, doesn’t specifically define what activity will qualify as an improvement in the”quality of care.” That leaves plenty of room for carriers to manipulate the process and circumvent the true intent of the legislation.

According to the article, Sen. Jay Rockefeller, a democrat from West Virginia, has found insurers are already classifying many administrative costs as medical expenses. He wants Congress to impose a rigorous standard. The New York Times is advocating sensible boundaries that exclude technologies and programs that merely streamline operations.

For example, insurers want to include the cost of setting up provider networks and programs that deter fraud and overbilling in the patient care ratio. Most people, however, would consider those administrative activities.

It’s clear to us that someone at the federal or state level must monitor carrier decisions to blur the lines between patient care and administrative costs so health care reform can remain the true reform Americans counted on.

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