U.S. Senate Report Finds That Insurers Re-Label Overhead, Administrative Costs as “Medical Care” to Meet New Law’s Requirement to Cut Overhead

Washington, D.C. — In advance of rules being written by the Obama Administration, health insurers are new health reform law by simply re-labeling administrative costs as "medical care." In an attempt to make health insurers more efficient, the health reform law enacted last month requires that insurers spend at least 80% of customers’ premiums on medical care in the individual insurance market, and 85% in the employer/group market.

The new evidence was released today in a U.S. Senate report available at: http://commerce.senate.gov/public/?a=Files.Serve&File_id=d20644bc-6ed2-4d5a-8062-138025b998ef
 
“Health insurers keep proving that they will sniff for every loophole and play every game to keep profits high without becoming more efficient or helping control overall medical costs,” said Jerry Flanagan, health care policy director of Consumer Watchdog. “The Obama Administration must act swiftly to put an end to this insurer gaming.  Consumers will brook no excuses for failure by the White House or Congress to strongly defend newly won consumer protections and ward off an onslaught of well-funded lobbyists.”

For example, on its website, WellPoint reports:

"On January 1, 2010, WellPoint, Inc. began classifying certain benefits provided to improve its members’ health and medical outcomes as benefit expense, as permitted by generally accepting accounting principles.  These include costs for nurse hotlines, health and wellness programs, including disease management and medical management, and clinical health policy. Prior year amounts have been reclassified to conform to this new presentation."

Consumer Watchdog predicted that WellPoint and other insurers will lobby for definitions that exactly match the company’s revised idea of what constitutes medical care.
 
“The addition of ‘medical management’—a grab bag that may include purely administrative units whose job is to deny as much expensive care as possible—shows WellPoint’s intent to relabel first and defend it later,” said Flanagan.

According to a statement released by Senator Rockefeller’s office today: "The Committee staff report Chairman Rockefeller released today… highlights health insurance companies’ new efforts to ‘reclassify’ their administrative expenses as medical expenses in the wake of health care reform."

The Department of Health and Human Services (HHS) is currently writing key rules to accompany the so-called "medical loss ratio" requirement which will include a key definition of what constitutes a "medical expense."  This rules must be carefully written to block the kind of trickery already underway by health insurers, according to Consumer Watchdog.

The newest information, released today in a U.S. Senate report, follows revelations that WellPoint, parent company of Anthem Blue Cross, also intentionally padded already huge premium increases in California, just in case regulators demanded reductions.  According to the report released today, WellPoint, the nation’s largest insurer, has already reclassified more than a half a billion dollars of administrative expenses as medical expenses.

In a letter last month to California insurance Commissioner Steve Poizner, Consumer Watchdog also accused WellPoint of laundering profits through other WellPoint subsidiaries and sending excess amounts to the parent company.  See more on WellPoint rate padding and read the letter to Commissioner Poizner at: http://www.consumerwatchdog.org/patients/articles/?storyId=33357

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Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: http://www.ConsumerWatchdog.org