New Report Shows How Much Health Insurers Actually Spend on Care
Insurers can increase efficiency and improve patient care
With Americans increasingly concerned about rising health care costs, New Jersey PIRG Law and Policy Center today released a report finding that health insurers can cut overhead and increase patient care. The report, More Bang for the Health Care Buck: How an Efficiency Standard for Health Insurers Can Reduce Overhead and Deliver More Patient Care, examines how much health insurers spend on health care benefits, rather than administrative overhead. It concludes that an efficiency standard requiring insurers to spend 85% of their revenues on patient care is a realistic, achievable standard that will reduce the cost of health care and provide higher-value coverage.
“We buy insurance so that medical care is there when we need it,” said Jacob Koetsier. “But how many of our premium dollars go to care and how many are wasted on endless paperwork and other administrative costs? Some, like Empire Healthchoice Assurance of the Anthem group in New York, do a good job of keeping overhead low. But others, like Aetna Health Insurance Company in Oregon, don’t give consumers a good value for their health care dollar.”
When consumers buy health insurance, they have no guarantee of a fair return on their health care dollar. Premiums should go primarily towards care, but they sometimes go disproportionately to administrative overhead instead. While some administrative costs are inevitable, insurers also spend billions of dollars attempting to shift costs onto providers, and processing duplicative, overly-complex paperwork. To encourage efficiency and get costs under control, some states have considered legislation that would require insurers to spend 85 percent of the premiums they take in on health care, rather than administrative costs, profits, and other expenses.
“Our research surveyed health plans across the nation, to see how much spending was going to care and how much was being chewed up by overhead,” Koetsier continued. “We found that insurers large and small, for-profit and non-profit alike, can spend 85% of premium dollars on patient care, by making achievable improvements in efficiency. In fact, almost half of the nation’s insurers already meet that requirement.”
Among the report’s findings:
· Many insurers, small and large, already meet the 85% standard, proving that it is an attainable, practical requirement. Almost half – 47% – of nationwide insurers already meet this standard.
· Of the 53 surveyed insurers, we found only three that spent less than 75% of revenues on patient care, suggesting that moderate improvements in efficiency would allow most noncompliant insurers to meet an 85% standard.
“Setting an insurer efficiency standard just makes sense,” Koetsier concluded. “Our research shows that the industry can comply with an 85% standard – in fact, most of it already does. This simple policy change will make the outliers measure up. It will bring down costs and improve our health at the same time.”
NJ-More-Bang-for-HC-Buck.pdf