Tuesday, November 3, 2009

US Senate Probe Finds Medical Care Underspending By Big Insurers

state insurance

WASHINGTON (Dow Jones)--The six largest health insurance companies in the U.S. spent considerably less on medical care than that estimated by insurance industry officials, a U.S. Senate Commerce Committee investigation found.

A review of publicly available data on industry earnings and spending found that, of the total amount of money in premiums received by the six companies in the individual insurance market, 74 cents of every dollar were spent on providing medical care. Data also showed that they spent 80 cents on medical care in the small group health insurance market and 84 cents in the large group market.

Those figures are well below an industry-wide average of 87 cents of every dollar that America's Health Insurance Plans trade group estimates is spent on medical care.

The six insurers include Aetna Inc. (AET), Cigna Corp. (CI), Coventry Health Care Inc. (CVH), Humana Inc. (HUM), Unitedhealth Group Inc. (UNH) and Wellpoint Inc. (WLP).

The Commerce Committee report examines the "medical loss ratio," which shows the proportion of total company revenue to actual spending on medical care. The remaining money--13 cents on the dollar, according to AHIP--is spent on administrative expenses or tallied as profits.

Sen. Jay Rockefeller, D-W.Va., the chairman of the Senate Commerce Committee, criticized the companies in a statement.

"The data released in this letter reveals that while health-care costs are spiraling upwards, consumers are paying more and getting less, and the health insurance industry doesn't want anyone to know what they are up to," Rockefeller said.

While AHIP spokesman Robert Zirkelbach said in a statement that federal data show the medical loss ratios average 87 cents of every premium dollar, he discounted the importance of the statistic to the quality of medical care provided by insurers.

"[The medical loss ratio] is not an accurate measure of the efficiency or effectiveness of health plans," Zirkelbach said. "'Administrative costs include programs and services that help to improve care and reduce overall health-care costs for families and employers."

The report singles out Cigna, saying that it failed to report $5 billion in small group and large group insurance business to state regulators and instead reported it as "other group" business. Rockefeller said the report's findings on Cigna are "just another disturbing example of why we need more transparency and accountability in the health insurance industry."

Cigna in a statement said it would work with the Senate Commerce Committee and state regulators on the reporting methodology for its medical loss ratios.

"Cigna strives to submit its state insurance regulatory filings in a timely and accurate manner," Cigna spokesman Chris Curran said. "We have filed our data with state regulators in this manner since 2006 based on how we track the data internally."