Insurance companies reforming accounting practices to keep high profit
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Some U.S. insurance companies are changing their accounting practices to count administration costs as medical costs, Reuters cited a U.S. Senate panel's report released on Thursday.
Under the health care reform bill, insurance companies are required to use 85% of insurance premiums paid for large group plans on medical costs and 80% for individuals and small groups.
If insurance companies fail to reach this so called medical-loss ratios or MLRs or if they spend too much of premium dollars on overhead, such as big salaries, administrative costs and marketing or simply they keep too much insurance profit margin, the health care bill will require them to issue a rebate to the insurance buyers.
The insurance industry knows the common sense that less medical expenses mean high profits.
Senate Committee on Commerce, Science and Transportation was cited as saying in a statement that "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 new law will take effect on Jan 1, 2011. The report says that a review of insurance companies' expenses for 2009 shows that in some markets, health insurers spend as much as 74 percent of premium dollars on medical costs.
Jimmy Downs
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