Health Care Reform: Insurers Inflate Profit, We Get Rebates!

Bill Moyers interviewed Wendell Potter, a former flack for CIGNA, on his July 10 PBS broadcast. The interview is getting increasing online attention from folks actually reading the pending health care reform legislation. In this interview, Potter shares the inside view of all the ways private insurers try to inflate their profits and prevent competition (that really is why they don't want the public option, same reason Prostrollos don't want any more car dealerships in Madison).

Among other things, Potter enlightens us about the medical loss ratio, a measure of profit:

BILL MOYERS: You told Congress that the industry has hijacked our health care system and turned it into a giant ATM for Wall Street. You said, "I saw how they confuse their customers and dump the sick, all so they can satisfy their Wall Street investors." How do they satisfy their Wall Street investors?

WENDELL POTTER: Well, there's a measure of profitability that investors look to, and it's called a medical loss ratio. And it's unique to the health insurance industry. And by medical loss ratio, I mean that it's a measure that tells investors or anyone else how much of a premium dollar is used by the insurance company to actually pay medical claims. And that has been shrinking, over the years, since the industry's been dominated by, or become dominated by for-profit insurance companies. Back in the early '90s, or back during the time that the Clinton plan was being debated, 95 cents out of every dollar was sent, you know, on average was used by the insurance companies to pay claims. Last year, it was down to just slightly above 80 percent.

So, investors want that to keep shrinking. And if they see that an insurance company has not done what they think meets their expectations with the medical loss ratio, they'll punish them. Investors will start leaving in droves.

I've seen a company stock price fall 20 percent in a single day, when it did not meet Wall Street's expectations with this medical loss ratio.

For example, if one company's medical loss ratio was 77.9 percent, for example, in one quarter, and the next quarter, it was 78.2 percent. It seems like a small movement. But investors will think that's ridiculous. And it's horrible.

BILL MOYERS: That they're spending more money for medical claims.

WENDELL POTTER: Yeah.

BILL MOYERS: And less money on profits?

WENDELL POTTER: Exactly. And they think that this company has not done a good job of managing medical expenses. It has not denied enough claims. It has not kicked enough people off the rolls. And that's what-- that is what happens, what these companies do, to make sure that they satisfy Wall Street's expectations with the medical loss ratio.

[Bill Moyers Journal, 2009.07.10]

H.R. 3200 to the rescue! That big ol' health care reform bill, tells insurers job one needs to be providing the service we pay them for, not inflating the wallets of shareholders through rescission and claims denial. Section 161 authorizes the Secretary of HHS to set floors on medical loss ratios. If our health insurer manages to save a whole bunch of money, we get a cut in the form of rebates!

Now you know, that seems only fair. Think of it this way: suppose you pay your premium on time all year long. You and your family eat lots of broccoli, ride your bikes, get plenty of sleep, and stay healthy all year. Not one doctor visit, not even a sniffle. You just saved the insurance company a bunch of money. Don't you deserve some credit?

Or suppose you do end up in the hospital, but you play the good consumer and ask for generic drugs, turn down certain tests and treatments, do everything on the cheap. The doctor says, "Insurance is going to pay for it anyway, what do you care?" but you say, "Nope, I gotta do my part to control health care costs." Again, you just helped the insurer keep money in its pockets. Don't you deserve a piece of the action?

Insurance is a collective effort, neighborly socialism with, as we practice it, a nice capitalist cream on top. If our insurers manage not to use all the money we share with them, we deserve at least some of that money back.

Medical loss ratio floors—another reason to love the health care reform bill.

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Some more reading on health care reform:

• Martin Bosworth, managing editor of Consumer Affairs, blogs about how long he had to wait to get necessary medical care in the for-profit American health care system that some people don't want to fix. His initial bill for ten hours of waiting, a couple tests, two minutes with a doctor, no clear diagnosis, and a prescription for pain pills: $13,000.