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Consumer groups want federal investigation of insurers' medical spending

August 12, 2010 |  1:27 pm


Consumer advocates urged the Obama administration Thursday to investigate what they called an effort by large for-profit insurance companies to slash spending on medical care even as they raise premiums.

In a letter to Health and Human Services Secretary Kathleen Sebelius, Consumer Watchdog and the Center for Media and Democracy said that insurers reported less medical spending in recent months ahead of new federal rules that will require the companies to do just the opposite starting next year.

Under the nation’s new healthcare law, insurers will have to devote at least 80% of premiums to medical claims for individuals and small businesses, and as much as 85% of premiums for policies covering large businesses.

Federal regulations are being drafted to clarify what constitutes medical costs and administrative expenses. As those rules are finalized, the two consumer groups want the U.S. Department of Health and Human Services to examine medical spending by major insurers such as WellPoint Inc., Cigna Corp. and UnitedHealth Group, and make the findings public.

“Insurance companies appear to be making sure that when new federal rules for spending on healthcare kick in next year, they can keep their administrative bloat and profits intact,” said Judy Dugan, research director of Consumer Watchdog in Santa Monica.

The insurance industry’s Washington lobbying arm insisted that a few months of financial data may obscure the fact that insurers devote most of their premium income to healthcare.

An executive with America’s Health Insurance Plans said that administrative spending by major insurers has declined steadily for six straight years.

“All the data show that the vast majority of the premium dollar goes to pay for direct medical services,” said Michael Tuffin, the group’s executive vice president. “We’re spending money on the 200 million people we serve. The track record is clear: This is an efficient, low-margin industry.”

-- Duke Helfand