Blue Cross Continues to Spend Less than 80% of Premiums on Patient Care
[Posted 06/23/08]

If California’s health plans spent at least 85 percent of premiums on actual patient care, the state’s health care system would see an infusion of over $1 billion dollars, according to CMA’s 15th annual Knox-Keene Health Plan Expenditures Report, detailing the financial status of California’s HMOs. This year’s report shows that for the seventh year running, Blue Cross of California has spent less than 80 percent of premium dollars on patient care. Just 79 percent of its revenue went to patient care in fiscal year 2006-2007, with 17 percent going to profits and administration.

California’s Knox-Keene Act requires 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. 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.”

In addition to Blue Cross, 11 other plans did not meet the 85 percent threshold last year. Aetna Health Care, for instance, spent only 81.4 percent of its premium dollars on patient care. Blue Shield spent 82.1 percent.

CMA is sponsoring a bill (SB 1440) that would bar health plans from spending more than 15 percent of premium dollars combined for profit and administration. A change in the law would provide an enormous benefit to patients and the health care system. Blue Cross and Aetna alone collected $20 billion in premiums from patients. If just these two immensely profitable insurance companies spent 85 percent on health care, an additional $933 million would be available for patient care in California.

CIGNA HealthCare of California and Kaiser Foundation Health Plan scored the highest of the major plans, spending 94.3 and 90.6 percent respectively on patients.

Click here to download the report.

Contact: David Ford, 916/444-5532 or dford@cmanet.org.