Medical Loss Ratios: Do We Get Enough Bang for Our Healthcare Buck?

Jeff Kaplan, MD

Loopholes to avoid medical loss ratio requirements, inequitable physician reimbursement -- there's a lot not to like about health care reform.

Although there are valuable controls that have been wedged into place by health care reform, intended to prevent the insurance companies from denying or limiting medically necessary (and appropriate) care, nevertheless, “Big Daddy Insurance” and “Big Pharma” (otherwise known as the “medical/industrial complex”) are still taking and spending about a quarter or more of revenues on big management, marketing, and administrative salaries and perks.

Because they are for-profit business organizations, the insurers’ task now will be to identify and exploit loopholes in the poorly worded health care reform legislation mandating that they spend 80% of premium dollars on providing health care. That rule, if followed, means that big insurers are spending a reasonable percentage of the premium revenues they collect on health care services (this is known as the medical loss ratio, or MLR, which is the cost of care divided by the amount of premiums collected). Click here to read another physician’s take on this issue.

Here’s an example of what I mean about loopholes: the business people who run these companies want to include insurance brokerage fees and other non-medical care expenses in the bucket of legitimate medical expenses. Which means more revenue for the company and less spent on health care for customers. And it’s no better for physicians, who are often treated as "cost" or "profit" centers by these companies. A California physician friend of mine noted that the plans now want to call physician credentialing (also known as credential screening) “Medical Care and Contracting,” and screen out the outliers who might not participate in the withholding of care.

The reason why some of us felt let down when a watered-down version of the health care reform legislation was passed is that eliminating multiple third-party payers might mean spending only 60% of health care dollars on managing the delivery of care. Moreover, this legislation is not going to make anyone happy, for it doesn't honestly address the broken elements of our current health care and delivery system. For a prescient, related comment from by Sen. Bernie Sanders (VT) about the profits being made by the health insurance industry see “One Cannot Measure What One Does Not Manage: Sit on, Obfuscate, Bureaucratize.”

In "Physicians' Opinions about Reforming Reimbursement: Results of a National Survey," an article by Federman, Woodward, and Keyhani published in the October 2010 issue of Archives of Internal Medicine, the authors noted that physicians, threatened with reduced reimbursements, will not support reform. This goes double for specialists.

Indeed, the survey showed that “most physicians believe that Medicare reimbursements are inequitable, and yet there was little consensus on strategies to reform payment. Physicians generally showed the least support for proposals that carried the risk of reduced reimbursement, such as payments for bundled care. For physicians who frequently perform procedures, such as surgeons, there was low support for shifting some reimbursement from procedures to evaluation and management services, and there was very low support among surgeons and other nonmedical specialists for a 3% reduction in reimbursements to offset increased payments for primary care physicians... Nevertheless, underpayment of management and counseling even in procedurally oriented specialties is a concern for many physicians.”

The surveyed physicians also sort of acknowledged that it is necessary to reduce fragmented care by improving care coordination and continuity of care, even before the inevitable bundling and paying by episode of care.

It is my hope that further research will clarify what tradeoffs physicians may be willing to make in the interest of payment reform, which will give us needed détente in the interest of payment reform. I see that effort relevant for all corners of the medical/industrial complex, lest we continue to take profits before patients.