On Nov. 11, 2010, the New England Journal of Medicine Blog ran a Perspectives article by Timothy Jost, JD,  entitled, “Writing New Rules for Insurers — Progress on the Medical Loss Ratio”. Ellen Shaffer sent the following Letter to the Editor in response.  

To the Editor:

In his Perspective article, Jost (Nov. 11 issue) (1)  discusses the medical loss ratio — the percentage of an insurer's premium revenue that it spends on clinical services for enrollees. In assessing the medical loss ratio, medical expenses must be defined narrowly to effectively provide incentives for cost control and ensure that premiums intended to pay for medical care are not diverted into marketing, administration, and excessive executive compensation.

Current proposals give the insurance industry two enormous new bites into the apple. The new health care reform law (the Affordable Care Act [ACA]) includes “activities that improve health care quality.” (2) Contrary to Jost's statement that the regulation proposed by the National Association of Insurance Commissioners (NAIC) was consistent with the ACA, the NAIC regulation takes an additional giant step beyond the ACA by giving the industry credit for broad categories of activities that “improve health outcomes,” including wellness and prevention programs. The industry has already begun to game the system, creating and benefiting from marketing efforts and insubstantial programs that masquerade as clinical treatments. (3)

The Medicare program and many large insurance companies achieve a medical loss ratio of 95 to 98% without these cushions. The ACA requires only 80 to 85%. The Department of Health and Human Services should review the NAIC's otherwise laudable work to ensure that the medical loss ratio provides strong incentives to reduce the administrative burdens placed on physicians and patients.

Ellen R. Shaffer, PhD, MPH
EQUAL Health Network, San Francisco

ershaffer@gmail.com 
 

(1)  Jost TS. Writing new rules for insurers -- progress on the medical loss ratio. N Engl J Med 2010;363:1883-1885 http://www.nejm.org/doi/full/10.1056/NEJMp1011717

 

(2)  PPACA Sec. 2718 (a)(2).

 

(3)  U.S. Senate Committee on Commerce, Science, and Transportation, Office of Oversight and Investigations, Majority Staff. Implementing health insurance reform: new medical loss ratio information for policymakers and consumers — staff report for Chairman Rockefeller. April 15, 2010. (http://commerce.senate.gov/public/?a=Files.Serve&File_id=d20644bc-6ed2-4d5a-8062-138025b998ef.)