CMA this week released its 13th annual Knox-Keene Health Plan Expenditures Report, detailing the financial status of California’s HMOs. This year’s report shows that for the fifth year running, Blue Cross of California has spent less than 80 percent of premium dollars on patient care. Just 78.9 percent of its revenue went to patient care in fiscal year 2004-2005, with 21 percent going to profits and administration.

“Vital patient care is being short-changed by for-profit HMOs that send ever-increasing portions of premiums to Wall Street instead of spending it on patients,” says CMA President Michael Sexton, M.D. “If a substantial part of these profits were kept in the health care system, it would help make Californians healthier, stabilize the endangered emergency care system, and ensure that all patients get access to the care they expect and deserve.”

State law requires, under the Knox-Keene Act, that no more than 15 percent of insurance company revenues go to administrative costs including marketing. When the act became law in 1975, the intent was to require insurers to spend 85 percent of premium directly on medical care. Because the vast majority of health plans at the time were nonprofit and it was expected that the nonprofit model would prevail, the law did not include language regarding profits. For-profit health plans have since interpreted this to mean that profits are an expense that can come from the 85 percent intended for patient care. In an irony that reflects the industry view of health care, insurance companies universally refer to what they spend on patient care as “medical loss” and they call the percentage “the medical loss ratio.”

CMA this year sponsored a bill that would have barred health plans from spending more than 15 percent of premium dollars combined for profit and administration. Although the bill (SB 1591) died, the issue has considerable support in the Legislature and CMA will continue to pursue such legislation.

A change in the law would provide an enormous benefit to patients and the health care system. Blue Cross and Aetna alone collected $12 billion in premiums from patients. If just these two immensely profitable insurance companies were required to spend another 6 percent on health care, an additional $720 million would be available for patient care in California.

In addition to Blue Cross, several other plans do not meet the 85 percent threshold. Aetna Health Care, for instance, spent only 78.7 percent of its premium dollars on patient care. Blue Cross insures more than 4.5 million Californians; Aetna fewer than 300,000. Many health plans do spend at least 85 percent of premium on patient care. Kaiser Foundation Health Plan scored the highest of the major plans, spending 93 percent of its funds on patients. Molina Medical Center/American Family Care, also noteworthy, spent 88.4 percent of its funds on patient care, a 5 percent increase from the previous year.

Click here to download the report.

Contact: CMA Media Relations, 916/551-2069 or knikos@cmanet.org.