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Tuesday, May 25, 2010

How insurance companies spend your dollars

Remember in elementary school when fractions were the bane of any student’s existence? Numerators and denominators were “bad words” and their relationship kept many school kids up past their bedtimes. Although many of the people who are working on implementing health reform are far past their elementary school math days, a certain numerator is causing them the same headaches.

As explained in a recent blog, a “medical loss ratio” is the percentage of each premium dollar that insurance companies spend on actual medical care or on improving the quality of care. The new health reform law requires companies to use 80-85 cents out of every premium dollar on these expenses, but determining what actually qualifies as a legitimate medical care or improving quality expense is raising problems.

According to an editorial by the New York Times,

The law leaves plenty of room for finagling over what can be counted as a quality improvement activity. The National Association of Insurance Commissioners, which is helping the administration develop standards, is being lobbied by insurers to adopt a broad definition and by consumer advocates to keep it narrow.

Essentially, the more loosely that “medical expense and quality improvement” is defined, the more insurance companies can claim questionable expenses are improving quality”

So what does that mean for you? It means that fewer of your premium dollars would instead go toward medical expenditures and more toward insurance company profits and overhead?

Even with the passage of these regulations, insurance companies will still try to protect their profits by using your premium dollars to pad their bottom lines. Although some insurance companies have started to comply with a few aspects of the law, they continue to look for ways to game the system.

Consumers need strong protections so that our money is spent on actually providing care.