Health plans make more, spend less in 2005
By Jonathan G. Bethely
American Medical News
March 6, 2006
If physicians needed any more indication of tightening reimbursement, how about this – not only did profits for the biggest health plans go up last year, but those plans also continued to cut the percentage of revenue they spend on care.
The medical-cost ratio – also called the medical-loss ratio or medical-care ratio – is the key number for health plans in terms of their level of profitability. That ratio, simply, is the percentage of dollars the companies spend on health care.
Whereas 10 years ago many plans had medical-cost ratios in the high 80s or 90s, now the highest percentage among large, publicly traded health insurers is Health Net, at 83.9%. Aetna, which had a medical-cost ratio well into the 90s when CEO John Rowe, MD, took over in 2000, recorded a ratio of 76.9% in 2005, Dr. Rowe’s final full year before his retirement. That was the lowest medical-cost ratio for the nation’s largest publicly traded plans.
Medical-loss ratios for 2005 (Source: Company 10-K, year-end filings with the Securities and Exchange Commission):
76.9% – Aetna
82.3% – Cigna
83.9% – Health Net
83.2% – Humana
78.6% – UnitedHealth Group
80.6% – WellPoint
http://www.ama-assn.org/amednews/2006/03/06/bisd0306.htm
Comment: By Don McCanne, M.D.
Clearly, one-fifth of health insurance premium dollars are not being spent on health care, but are consumed by the insurers. What does not show up in these numbers is the cost of the administrative burden that these insurers place on the health care delivery system. The billing and insurance related functions for physicians and hospitals burn up another 12 percent or so of the premium dollar (Kahn et al, Health Affairs, Nov/Dec 2005). Add these together, and that is about one-third of the premium dollar.
We are very concerned about the continued escalation of health care costs. New technology and pharmaceuticals are adding to the spending on physicians, hospitals, laboratories and other health care services. We fret about these expenditures within the two-thirds of the insurance premium that actually makes it down to the health care system, yet we are ignoring the one-third that is wasted on administrative services that provide no health benefit for the patient.
We are enriching this industry for providing coverage for the healthy workforce and their young, healthy families, and for covering the healthy sub-sector of the individual insurance market. We taxpayers are footing the bill for the population subgroups with greater health care needs.
We certainly are not receiving much value from the insurers – letting them have the easy stuff at a very high cost. Wouldn’t it be more logical to target their waste, rather than slowing spending growth by making health care unaffordable for those who do have needs?
Why do we keep hearing that eliminating this industry isn’t feasible? You would think that anyone with a modicum of business sense would believe that keeping them in charge is no longer feasible.