The first time I blew the whistle on health insurance companies was during a Senate Commerce Committee hearing in June 2009. Last Wednesday, almost five years later, I appeared before that committee again to give a progress report on how Americans have been benefiting since Congress enacted reforms in 2010 that changed the way insurance companies operate.
Among the practices I brought to the panel’s attention back in 2009 were those insurers engaged in to meet the profit expectations of shareholders and Wall Street financial analysts.
I explained that one of the ways insurers kept Wall Street happy was to spend as small a percentage of our premium dollars as possible on actual medical care.
I told them that analysts and investors pay close attention to an obscure mathematical equation called the medical loss ratio (MLR for short), which measures the percentage of premium revenue insurers pay out in claims.
“I saw an insurer’s stock price fall 20 percent in a single day after executives disclosed that the company had to spend a slightly higher percentage of premiums on medical claims during the previous three months than it did during the same period a year earlier,” I testified back then. “The smoking gun was the company’s first-quarter medical loss ratio, which had increased to 79.4 percent from 77.9 percent a year earlier.”
The chairman of the committee, Sen. Jay Rockefeller, (D-W.Va.), then decided to explore the issue further. After examining years of reports filed by insurance companies, the committee found that, as Rockefeller said Wednesday, “many of the policies health insurance companies were selling to families and businesses were just not a good value” because of their low medical loss ratios.
At Rockefeller’s insistence, the Affordable Care Act included a provision that requires insurance companies to spend at least 80 percent of our premiums on medical care and no more than 20 percent on overhead, including executive salaries and profits. That single provision — which went into effect in 2011 — has saved consumers billions of dollars in just two years.
As I explained to the committee last Wednesday, consumers benefit from the minimum MLR requirement in two significant ways. First, insurers are now operating more cost-efficiently to stay in compliance with the law. As a result, many policyholders are paying lower premiums than they would have been charged otherwise. Second, if an insurer fails to comply and spends less than 80 percent on medical care — or 85 percent in the large group market — it has to issue rebates to its policyholders.