Health plans make more, spend less in 2005

Insurers' medical-cost ratios are lower than ever.

By Jonathan G. Bethely, AMNews staff. March 6, 2006.

If physicians needed any more indication of tightening reimbursement, how about this -- not only did profits for the biggest health plans go up last year, but those plans also continued to cut the percentage of revenue they spend on care.

The medical-cost ratio -- also called the medical-loss ratio or medical-care ratio -- is the key number for health plans in terms of their level of profitability. That ratio, simply, is the percentage of dollars the companies spend on health care, including physician reimbursement.

Whereas 10 years ago many plans had medical-cost ratios in the high 80s or 90s, now the highest percentage among large, publicly traded health insurers is Health Net, at 83.9%. Aetna, which had a medical-cost ratio well into the 90s when CEO John Rowe, MD, took over in 2000, recorded a ratio of 76.9% in 2005, Dr. Rowe's final full year before his retirement. That was the lowest medical-cost ratio for the nation's largest publicly traded plans.

Health plans say they've been able to cut their medical-cost ratios through the use of technology and other means to allow for more judicious, health-effective spending. But the AMA and others have argued that health plans have kept a lid on costs because their market power allows them to unfairly dictate reimbursement terms to physicians.