“Medical loss” is the insurance term for health care to patients. Is this comforting to you? In the insurance world, the insurance premium is divided into two parts: “medical loss” and “administration and profits.” The higher the percentage of administration and profits, the lower the percentage of medical loss, and vice versa.

When you go to see your doctor, you should understand that you are a medical loss. Defining what goes into the medical loss ratio (MLR) is one of the most controversial features in the regulatory process of moving the health reform legislation (ACA) forward. That’s because the law sets minimum limits nationally on the MLR for all insurers for the first time. The MLR for the individual and small business market will now be 80 percent, meaning administrative and profit costs cannot exceed 20% of premium; or the companies have to spend 80 percent of your premium dollar on health care. For big business coverage, the MLR will be 85 percent.

The briar patch here is what should be included in the MLR vs. in the ‘administration and profit’ pot. For example, would quality of care measurements, and/or registries, and/or clinical decision support systems be part of the MLR? Or could they be counted in the administration side? Insurance companies say that quality of care systems, disease management and other care management processes have to be included within the MLR, or they will be bankrupted. Some companies want to include the insurance brokers who sell insurance to companies as part of the MLR — that seems wrong. But, quality of care activities — assuming they improve health care or health for patients — should be included as medical loss, I believe.

Insurance companies are worried that if these regs come out negatively for them, that this is a ploy to put them out of business and move toward a single-payer system. I don’t think that’s the intent, but there are some understandable reasons they feel this way. Medicare claims a medical loss ratio of about 96 percent (meaning about 4 percent goes to administrative costs). But Medicare transfers a lot of administrative hassle, paperwork and other details to doctors and patients. Most nonprofit insurance companies would reasonably be expected to have MLRs that exceed Wall Street-owned insurers, and with few exceptions, this is the case.

The ACC thinks that any service or process which improves patient care, prevention, outcomes or chronic disease management is legitimately part of the MLR. But insurance brokers? No way. Incidentally, in some coverage areas the amount of money in the premium dollar that goes to the insurance brokers is more than is paid in aggregate to doctors! Nice.

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