Bill Would Force Health Insurers to Put More Money Toward Patient Care

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Most Californians have noticed that their healthcare insurance premiums keep going up and up. What Californians might not know is that insurance company profits have jumped even more. KPCC's Julie Small reports on a bill that would force companies to invest that money back into medical care.

Julie Small: State Senator Sheila Kuehl wants to tinker with something the insurance industry calls the medical loss ratio. That's the ratio of money spent on direct medical care versus the amount spent on administrative costs and profit.

Sheila Kuehl: It's pretty telling in my opinion that HMO's and insurers refer to expenditures for your health care service as medical losses.

Small: The Santa Monica Democrat who chairs the Health Committee says Wall Street rewards companies that spend the least on medical care.

Kuehl: Low spending on health care services, higher profit.

Small: The total net income for HMO's rose nearly 30% in the first half of 2007. Keuhl believes that profit should be invested back into medical care. She want 85 cents of every premium dollar spent on doctor visits, prescriptions, procedures, and surgeries. Companies could spend only 15% of that premium dollar on administration and financial perks, such as agent and broker commissions, dividends, profits, and stock options. The California Medical Association, representing 35,000 physicians, sponsored the bill. Richard Frankenstein is the CMA's President.

Richard Frankenstein: When the public hears of exorbitant salaries, huge dividends sent to out of state shareholders, they are discouraged from purchasing health insurance, thinking that their health care needs are not the main focus of that insurance.

Small: The measure could mean more dollars for doctors by covering more procedures paying higher reimbursement rates. Chris Ohman of the California Association of Health Plans thinks it could mean a loss of flexibility and innovation.

Chris Ohman: Whenever you put in arbitrary limits on what you can spend money on, or in effect have forms price regulation, you get unintended consequences.

Small: Ohman says most people have a knee jerk reaction that it's a good idea to cut administrative costs.

Ohman: But what we don't think about necessarily is that that administrative expense can actually be very important to improving health and lowering costs overall.

Small: Like developing new technologies like computerized medical records that improve patient care. Ohman would not comment on that 25% plus profit margin currently enjoyed by insurance companies.