Report details how much insurers spend on care in California

A new report released by the California Medical Assn. reveals that during the last fiscal year, nine health plans in the state spent less than 85% of revenue on medical care for members, the minimum recommended in a bill the association supports.

This year's medical spending report for the fiscal year ending June 30, 2007, was the 15th the CMA has released listing the medical-loss ratio for the health plans regulated by the Knox-Keene Act, based on data collected by the state's Dept. of Managed Health Care.

Great-West Healthcare of California had the lowest medical-loss ratio, at 69.4%. Great-West was recently bought by Cigna, which had one of the highest medical-loss ratios at 94.3%.

WellPoint-owned Blue Cross of California (now known as Anthem Blue Cross) had the second-lowest medical-loss ratio at 79%, and Blue Shield was fifth lowest, at 82.1%.

Kaiser Foundation Health Plan had a ratio of 90.6%. L.A. Care Health Plan, a public health plan with fewer than 1 million members had the highest of any plan, with 97.1% of revenue going to care.

The medical association also calculated the additional medical spending that would have been created if the plans spent 85% of their revenue on care that year: more than $1 billion, with more than $933 million of it from California's two Blues plans.

California Medical Assn. President Richard Frankenstein, MD, a pulmonologist from Garden Grove, said health plans' medical spending ratios are revealing to more than just shareholders.

"Everyone's looking for ways to reduce the total cost of health care, and doctors are certainly working very hard at that," he said. "Health plans take advantage of their monopoly power. They charge their customers more at the same time they reduce what they pay out to hospitals and doctors."

The report comes as the CMA pushes a bill that would require plans to have a minimum medical-loss ratio of 85%. Though California health plans must limit administrative costs to 15% of revenue, there is no restriction on profit or any minimum medical-loss ratio except in the individual market, where insurers have to spend at least 70 cents of every premium dollar on medical care.

Dr. Frankenstein said insurers have a social responsibility to keep profits and administrative costs to a minimum.

"We are talking about something people cannot do without," he said. "There is ample precedent for regulating the profits from critical goods and services."

The proposed rule would apply to HMOs and PPO plans, but exempts short-term health insurance policies, Medicare supplement insurance, and specialty insurance such as vision or dental plans.

Twenty-four other states mandate medical-loss ratios, although only five do so across both group and individual markets. The proposed 85% would be the highest required minimum in the country. The current highest is 82% minimum medical-loss ratio required in Minnesota for some insurers offering small group policies.

The current bill is at least the fifth attempt at mandating a medical spending ratio in California, according to the CMA.

A comprehensive reform bill that included an 85% minimum medical-loss ratio made it through the Legislature last year but was vetoed by Gov. Arnold Schwarzenegger in October 2007.

Nicole Evans, spokeswoman for the California Assn. of Health Plans, said her organization opposes a mandated medical-loss ratio and doesn't believe it would help contain health care spending.

"We really need to focus our energy on curbing the cost of medical care," she said. "There are many things that can be done: One is evidence-based medicine, making sure we're giving the right care at the right time; looking at more innovative ways to deliver care, like the retail clinic model; and [addressing] obesity and prevention; using things like e-prescribing and not paying for 'never events.' "

Dr. Frankenstein said getting the bill passed this year will be "an uphill battle."

The bill had made its way through the Senate and Assembly's Committees on Health by the end of June and was headed to the Assembly Appropriations Committee.