Cigna Overstates Revenue Spent on Care, Senator Says (Update1)
By Alex Nussbaum
November 3, 2009
Nov. 3 (Bloomberg) -- Cigna Corp. and the other five top health insurers spend a smaller share of premium revenue on health care than the 87 percent the industry cites, Senator Jay Rockefeller said in a letter to the company.
The six largest insurers, including Cigna, UnitedHealth Group Inc. and WellPoint Inc., had so-called medical loss ratios of 81.5 percent to 84.8 percent in 2008, Rockefeller said in a letter yesterday to Cigna's chairman and chief executive officer, H. Edward Hanway. The industry trade group, America's Health Insurance Plans, says on its Web site that the industry ratio was 87 percent, Rockefeller said.
Congress is debating a revamp of U.S. health care to expand coverage and contain costs, weighing $500 billion in subsidies to help the uninsured buy policies. Rockefeller, a West Virginia Democrat and chairman of the Commerce committee and the Finance committee's subcommittee on health care, said "billions of dollars" represented as going to health care are bolstering insurers' profits or paying non-benefit expenses.
"It is critical that consumers have a guarantee that the overwhelming majority of subsidy dollars are going toward actual medical care," said Rockefeller, who backs creating a government-backed insurance program to compete with private companies.
The top insurers spent 74 percent of individual policyholders' premiums on health-care costs, and 80 percent on small-business policies, said Rockefeller. "The analysis shows that in the individual and small group segments, insurers spend a significantly smaller portion of each premium dollar on patient care than they do in the large group business," he wrote.
Legislation in the U.S. House would require insurers to spend at least 85 percent of premiums on medical care. A rival bill passed by the Senate Finance Committee last month would make companies report their loss-ratios, without setting a minimum level.
Cigna, based in Philadelphia, is this year's best performer in the Standard & Poor's 500 index of six managed-care companies, with the shares gaining 67 percent. UnitedHealth and WellPoint are the largest health insurers by sales.
Cigna failed to disclose that it sells policies in the small-group and individual market when asked by the Commerce committee in August for data, the letter said.
The company is reviewing Rockefeller's letter, said Chris Curran, a Cigna spokesman, in an e-mail. The company on Oct. 2 provided the committee with data on the percentage of premium dollars spent on care. That data included information on policies for employers and individuals, he said.
"While we do not separate the small business MLR from our employer segment, it accounts for only one-half percent of our employer membership," Curran said.
Medical loss ratios are "not an accurate measure of the efficiency or effectiveness of a health plan," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the industry trade group in Washington.
"Some of the administrative expenses are for programs and services that will actually help to lower the cost" for members, he said yesterday in a telephone interview. That includes efforts to combat fraud or for wellness programs to keep members from getting sick, Zirkelbach said.
The committee looked at premiums and expenses from UnitedHealth, based in Minnetonka, Minnesota; WellPoint, of Indianapolis; Aetna Inc. of Hartford, Connecticut; Humana Inc. of Louisville, Kentucky; and Coventry Health Care Inc. of Bethesda, Maryland.
Rockefeller's comments are "disappointing," said Aetna President Mark T. Bertolini.
"He knows what the numbers are," Bertolini said today in an interview at an industry conference in New York. "We know what the numbers are. This vitriol and vituperation does no good for anyone, least of all the American people."
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