Finding the right floor: How much should insurers spend on medical care?

Several states are looking at setting or raising minimum medical-loss ratios.

By Emily Berry, AMNews staff. Nov. 24, 2008.

News about health insurance companies -- policy rescissions, multimillion-dollar settlements over unfair business practices, soaring premiums -- raised an urgent question for state legislators.

How much of the premiums their constituents paid was going to CEO salaries, overhead and efforts to maximize profits, rather than to doctors and patient care?

At least 15 states have passed laws requiring insurers to spend a minimum percentage of premium dollars on care, and disclose those figures. Other states are considering similar legislation -- despite insurers' protests that they already more than meet those minimums.

California, the source of much of this year's news about insurers dropping sick patients and paying huge fines for other alleged misdeeds, was one state where health care spending drew legislators' criticism and scrutiny.

In February, Sen. Sheila Kuehl introduced a bill to raise the medical-loss ratio -- the percentage of each premium dollar an insurer must spend on health care -- to 85%.

"It's not acceptable for us to ignore such massive waste in the insurance industry when Californians are being bankrupted by rising health care premiums and gutted benefits," Kuehl said in a statement released in June.

Her statement accompanied a report from the California Medical Assn. detailing what managed care companies spent on medical care in the fiscal year ended June 30, 2007.

In CMA's report, Great-West Healthcare of California, since acquired by Cigna, reported a medical-loss ratio of 69.4%, the worst rate in the state.

[...]

Full text of AMNews content is available to AMA members and paid subscribers.

Access details

Join the AMA