Health Insurance Companies Shift Costs, Protect Profits Under New Health Care Reform Law

Published: Mon 19 Apr 2010

Perry Begay

Some of the biggest health insurance companies in the United States are altering their accounting practices to bill administration expenses as medical expenses in an effort to circumvent the new health care reforms, according to a report released on Thursday by a U.S. Senate panel.

According to the health care bill passed in March, health insurers must conform their spending habits to the new regulations. For instance, big group plans have to spend a minimum of 85 cents of every paid premium dollar on actual health care instead of administrative expenses, while small-group and individual plans must spend 80 cents.

Wall Street closely monitors these spending levels, referred to as medical-loss ratios (MLRs), as an indication of potential profits. After the report was released, major health insurance stock indexes dropped.

"The insurance industry is beginning to consider the financial impact of the new federally required (medical) loss ratio requirements, including questionable changes in their accounting practices," the Democratic-dominated Senate Committee on Commerce, Science, and Transportation explained in a statement.

For instance, WellPoint Inc "has already 'reclassified' more than half a billion dollars of administrative expenses as medical expenses," the statement said.

Insurers' Reactions

Kristin Binns, a WellPoint spokeswoman, said the corporation would cooperate with lawmakers to execute the MLR requirement, but would not comment on whether the company had altered any of its accounting practices or shifted its costs.

A review of health insurers' expenses in 2009 reveals that in certain markets, health insurers are spending an average of 74 cents per premium dollar, according to the committee's report.

Chris Curran, a spokesperson for Cigna, said it was too early to determine how the MLR requirements would impact the company, and that methods of assessing costs were still being determined ahead of the requirements. Other health insurers were unresponsive to requests for comment.

2011 Deadline

While the new MLR requirement does not take effect until January 1, health insurers at this point are "still far below" what the legislation will demand, according to committee chairman Senator John Rockefeller.

"This new data makes clear that too many health insurance companies are still putting profits before people," Rockefeller explained, "and they have a lot of work to do to meet the consumer protection requirements of the health care reform law by the end of this year."

Department of Health and Human Services regulators responsible for executing most of the new health care reforms are trying to carry out the MLR changes swiftly.

The agency, earlier this week, asked a major health insurance organization, the National Association of Insurance Commissioners, to provide recommendations for detailed MLR ratio regulations by the first of June, six months prior to the Dec. 31 deadline of the law.

"(The agency) is seeking to publish regulations as soon as possible to allow sufficient time for health insurance issuers to incorporate these changes," wrote U.S. Health Secretary Kathleen Sebelius in a letter to the insurance group.