Report highlights how Connecticut insurance companies ‘waste premiums’

HARTFORD — Connecticut Health Care For America Now released a study Thursday that spotlights how private health insurance companies “waste premiums.”

Health Care for America Now is comprised of more than 1,000 organizations representing more than 30 million people nationwide.

Connecticut HCAN supports the “Ensuring Value for Premiums” amendment to health care reform legislation pending in the U.S. Senate. The legislation, introduced Dec. 4 by U.S. Sen. Al Franken, D-Minn., requires private insurance companies to spend 90 percent of their revenue from premiums on health care-related costs. The remaining 10 percent of the premium would be used to build in overhead, profits and other non-medical payout charges.

Private health insurance companies spend, on average, 81 percent of their premium revenues on health care-related costs. In Connecticut, one company, Wellpoint, spends 83.6 percent of premium dollars on care.

By comparison, Medicare spends almost 98 percent of its premium revenues on health care-related costs.

Franken’s amendment would require private insurance companies to provide a refund to their customers in the event that they spend more than 10 percent of their premium revenue on non-health care-related costs such as CEO compensation, administration, lobbying, and marketing and advertising. Supporters of the amendment say small business owners and consumers should see a decrease in their premium costs as well as an increase in the amount of coverage provided as insurance companies seek to avoid paying a refund.

“The bill would set administrative costs at a more reasonable level than the current average loss rate and would better ensure consumers receive quality care,” said Phil Sherwood, deputy director of the Connecticut Citizen Action Group. “If more premium dollars were directed toward medical care, the quality of that care would increase.”

Sherwood noted that the current system allows insurance companies “to charge outrageous fees and allows for enormous profits for the insurance carriers. CEOs of insurance companies and top executives take in millions of dollars annually in salary, while raising rates every year when the money could be better spent on providing actual health care.”

Critics of the amendment, however, stress that there is less incentive for cost containment under government plans rather than private insurers. If private companies are forced to spend 90 percent of their revenue on health insurance, they would either have to cut costs or raise their premiums. The American Medical Association points out that private companies are already saddled with administrative costs not imposed on public programs. Much of these costs can be traced to complying with state and federal regulations.

Bristol Press - Friday, December 11, 2009