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July 06, 2008

California Health Insurance Companies Spend $10.3 Billion On Administration And Profit

Private health insurance companies regulated by the Department of Managed Health Care (DMHC) spend $6 billion each year on administration, and divert an additional $4.3 billion to profit, according to a report released by the California Medical Association (CMA). Prepared using data obtained under the Knox Keene Act, the report breaks down how private health insurance companies spend their revenues.

"This report paints in stark terms why California health care costs are skyrocketing for Californians," said Dr. Richard Frankenstein, M.D., President of CMA. "Health insurance companies in California spend billions of California's health care dollars each year on administration, and for-profit insurers divert billions of dollars more to profit. Californians' health care dollars should be spent on health care, not on bureaucracy."

Currently, private health insurance companies regulated under Knox Keene - representing some 60% of the health insurance market - are required to spend no more than 15% of their revenues on administrative costs. CMA and other health care advocates believe the statute includes profits as administrative costs; health insurance companies exclude profits from the 15%, allowing them to spend as little as they want on actual health care. SB 1440, a bill authored by Senator Sheila Kuehl and sponsored by CMA, would require insurance companies to spend 85% of their revenues on health care, driving down health care costs for consumers and potentially making coverage more affordable.

"It's not acceptable for us to ignore such massive waste in the insurance industry when Californians are being bankrupted by rising health insurance premiums and gutted benefits," stated Senator Kuehl. "California consumers have a right to know that there is a basic formula in the law for how much of their money is actually being spent on medical care. This is the least we should be doing."

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Posted by healthinsurance at July 6, 2008 04:25 PM

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