Rockefeller says insurers spending on selves: Rockefeller says health care industry spends less on medical care than reported

Sen. Jay Rockefeller this week hurled another in a series of accusations at the nation's health insurance companies.

In a 16-page letter to the head of the CIGNA, one of the nation's largest health insurance providers, Rockefeller described a new Congressional study that sheds light on a poorly understood part of the insurance industry.

The study by the Senate Commerce Committee found that six of the nation's largest for-profit insurance companies, including CIGNA, appear to be spending less on their customers' medical care and keeping more to pay company administrators and shareholders than the insurance industry claims.

The industry has maintained that it spends about 87 cents of every dollar in premiums it receives on medical care for its customers. The other 13 cents goes to administrative costs, including about 3 percent profits, according to a 2008 study conducted on behalf of the insurance lobby.

The amount of money companies spend on medical care versus how much they spend elsewhere is known as the "medical loss ratio."

Savvy consumers and investors each use the number, but in different ways.

A consumer is likely to want a company with a high medical loss ratio, of say, 90 percent, meaning the company spends 90 cents on the dollar for actual medical expenses.

That's one indicator that the company may have a good plan.

Investors, on the other hand, want a lower ratio, perhaps in the mid 70s, which would indicate that a company is likely to have more profits and more to give shareholders.

In the meantime, premiums are going up and Rockefeller wants to know if that's because of medical costs or because insurance officials want to take more money home.

"The American people and I are asking a serious question and one that deserves a straight answer -- why are health insurance costs going up each year?" Rockefeller said in a press release accompanying his letter to CIGNA

He added, "Are they spending it to make people well when they are sick and keep them healthy? Or is the money they charge going to profits, to executive salaries and to figuring out how to deny care to people when they really need it?"

The insurance industry responds that premiums are not rising because it's pocketing money but because of rising medical expenses.

From 1986 to 2006, health insurance premiums track directly with the underlying cost of medical care, according to a "fact check" on the blog of America's Health Insurance Plans, an industry lobby.

Rockefeller's interest in the number comes as Congressional Democrats plan to give billions of dollars to insurance companies in form of subsidies to help middle income Americans receive insurance.

Some would like to see the medical loss ratio capped so companies aren't spending taxpayer money for much else besides medical care.

The House version of health care reform contains such a cap. The Senate version so far does not.

If there isn't such a cap, some fear that insurance companies will simply pocket money from the government to pay executives or cushion shareholder returns.

That could potentially create a situation like this year's A.I.G. bonus scandal, where the government was seen as feathering corporate nests with taxpayer dollars.

"With nearly half a trillion dollars in premium subsidies proposed to be paid to private health insurance companies by taxpayers as part of health care reform, it is critical that consumers have a guarantee that the overwhelming majority of subsidy dollars are going toward actual medical care," Rockefeller said in his letter.

Perry Bryant, the executive director of West Virginians for Affordable Health Care, said administrative costs were not the only reason that premiums continued to rise but that they certainly were one of them.

"One of the reasons Americans have such high healthcare costs is we have very high administrative costs," Bryant said.

Fred Earley, the president of Mountain State Blue Cross Blue Shield, which insures 530,000 West Virginians, said the not-for-profit insurance provider spends about 89 cents of every dollar it takes in on medical costs.

He said the company's goal is to make about 2 percent profit each year to maintain reserves and protect against off years.

The Senate study also found that customers in individual and small group insurance plans typically are paying more for administrative costs than people in large plans.

But some of that is to be to be expected because the smaller plans don't have the same economies of scale that larger plans do.

In his letter, Rockefeller also charged CIGNA with incorrectly reporting to officials across the country how it spends the insurance premiums it charges customers. Rockefeller's office said CIGNA's failure to accurately report its medical loss ratio appears to violate state laws. CIGNA does not have major operations in West Virginia.

Contact writer Ry Rivard at ry.rivard@dailymail.com or 304-348-1796.

To see more of the Charleston Daily Mail, or to subscribe to the newspaper, go
to http://www.dailymail.com. Copyright (c) 2009, Charleston Daily Mail, W.Va.
Distributed by McClatchy-Tribune Information Services. For reprints, email
tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.