CMA Urges Obama Administration to Strengthen Medical Loss Ratio Rule for Health Insurers
The California Medical Association (CMA) has urged the U.S. Department of Health and Human Services (HHS) to prevent insurers from listing any consumer premium dollars used for utilization review as money spent on medical care and quality improvement.
Under the federal Patient Protection and Affordable Care Act, insurance companies in the large group market must dedicate at least 85 percent of their premium dollars to medical care and quality improvement rather than overhead and profit. HHS is deliberating its final regulations that will define what activities can be defined as quality improvement.
In an irony that reflects the industry view of healthcare, insurance companies universally refer to what they spend on patient care as “medical loss” and they call the percentage “the medical loss ratio.”
"A minimum medical loss ratio and greater transparency in the insurance market is essential to producing meaningful cost containment, assuring accountability and value for patients, and improving access to care," states the letter, signed by CMA President James Hinsdale, MD.
CMA applauds HHS for adopting rigorous medical loss standards to ensure that premium revenues are dedicated to patient care rather than overhead and profit. CMA is, however, urging HHS to take it further, and to make clear in the regulations that utilization review does not count as “quality improvement.”
"While CMA supports prospective physician-led quality initiatives that are truly aimed at improving the clinical care given to a patient, most prior authorization and prospective utilization review programs are merely cost containment activities employed by the health plans," the letter said.
CMA also called upon HHS to adopt tougher enforcement standards, citing California physicians' frustration with the lax enforcement of California's medical loss ratio laws. Even though California law and regulations require health plans to spend no more than 15 percent of their revenue for "non-healthcare related expenses, CMA has long been concerned that the California Department of Managed Health Care (DMHC) has allowed plans to spend insufficient amounts on healthcare, in violation of the law," the CMA letter stated.
Citing Anthem Blue Cross and its parent company, WellPoint, as the most egregious offenders, CMA's letter to HHS said that if California's medical loss ratio law "had been appropriately enforced, health plans would have spent $1.1 billion less on overhead and profit [in FY 2006–07] — resources that could have gone to provide healthcare to their enrollees."
CMA noted that its 2008 Knox Keene Health Plan Expenditures Report showed that California health plans regulated by the DMHC "spent $6 billion on administration and diverted an additional $4.3 billion to profit" in FY 2006–07. "This report shows in stark terms why healthcare costs are skyrocketing for Californians. Health insurers spend billions of California's health dollars on administration, and for-profit insurers divert billions more to profit," stated CMA's letter.
Because California has failed to enforce its medical loss ratio law, CMA recommended that HHS strengthen the enforcement provisions of its final rule by auditing each insurer annually, and argued that patients and employers should be entitled to seek a court injunction to enforce compliance.
CMA also recommended that HHS treat capitation payments by healthcare providers as a medical expense except where medical groups are delegated to adjudicate and pay claims.