Lincoln Cent Choice
Is Administration Driving Up Your Health Insurance Plan Costs?
It is well known that the cost of a health insurance plan has risen significantly over the past several decades. The average price of a policy has grown beyond the rate of inflation each year. Part of the reason for this is a trend towards decreasing medical loss ratios (MLRs). This term defines the percentage of health insurance premium revenue actually spent on providing health care. Currently, 81% of each premium dollar paid to health insurance companies goes towards providing health care services. Any large organization requires some administrative expenses in order to manage millions of patients, so it is understandable that some measure of money is used for such purposes. However, the MLR was as high as 95 cents for every dollar at the dawn of the 1990s!
What happened? Most importantly, the cost of a health insurance plan has skyrocketed since that time. A series of mergers and acquisitions have led to the consolidation of the health insurance market. These private insurers are mostly publicly traded companies, which means that they have to answer to shareholders on Wall Street. Investors desire a lower medical loss ratio, because it indicates present and future profitability. In fact, shares of Aetna stock dropped by over 20% after it admitted to its MLR increasing by under two points in one year. Perhaps they should have done more "purging"; a practice in which an insurance company does not explicitly drop an individual or employer-sponsored group from their health insurance plan, but drives them away through a combination of reduced coverage and dramatically heightened rates.
A slipping medical loss ratio is good for shareholders looking to maximize their dividends, but how does it affect patients? The current system encourages a health insurance plan to deny as many claims as it can justify. Policyholders have been paying premiums for decades, but paying for covered medical expenses leaves less money for millions of dollars in administrative expenses and executive salaries. From a purely financial standpoint, CEOs of the seven top for-profit health insurance companies deserve their pay: the industry is predicted to make $25 billion in profits for this year. Still, some are suspicious of certain methods these firms employ.
For example, a classic case is the inability to buy any health insurance plan due to a pre-existing condition, regardless of how minor or manageable it may be. To some extent, it makes sense that insurers do not want to reinforce the negative behavior of going uninsured by choice during times of good health and only buying a health insurance plan when they need it. On the other hand, even being a current health insurance policyholder in good standing does not always prevent them from losing essential coverage. Sometimes, people or small businesses see their individual, family or group health insurance plan canceled through no fault of their own--because a family member or employee became very sick. Treating such an illness is an extremely expensive proposition over the long term, so a handful of unscrupulous insurers may comb through medical records to find a possible reason to drop them.
Healthcare reform supporters claim that this is a pitfall of the current private health insurance market, which has a profit-maximizing motive. Non-profit cooperatives like Kaiser and government programs such as Medicare have medical loss ratios exceeding 90%. While this gives ammunition to proponents of a public option, that route has its own problems. Several legislators have presented the Senate with a solution; the amendment sponsored by Democrats Al Franken, Blanche Lincoln, and Jay Rockefeller will require insurers to ensure that at least 90% of every dollar paid in health insurance plan premiums goes directly towards the cost of health care. Moreover, the current healthcare reform bill also mandates the annual payment of a rebate to policyholders if non-claim costs are over a certain percentage: 25% for individual policies, and 20% for group health insurance. The purpose of this regulation is to steer insurance companies towards providing more of the product they sell: medical care in exchange for monthly payments.
About the Author
Yamileth Medina is an up and coming expert on Health Insurance and Healthcare Reform. She aims to help people realize that they can find a health insurance plan right now while waiting for a public option, if it ever gets passed. Yamileth lives in Miami, FL.