What would happen if insurance companies had to spend more of your premiums on your health care? What if they couldn’t give your money to their CEO as a bonus, or use it on misleading advertising campaigns fighting health care reform?

Specifically, what if insurers spent 90% or 95% of your money on your health care, instead of the 81% they spend now?

Well, according to a new report from the Main Street Alliance [pdf], they’d be able to give their customers between $54 or $94 billion in rebates on our premiums, depending on whether that level was 90% or 95%. That translates into hundreds of dollars per person covered by private insurance.

The amount private insurance spends on actual health care tells the story of the Wall Street takeover of the insurance industry, and points directly to why private insurance is so bad for our health.

Only 16 years ago, health insurance companies spent almost all of the premiums they collected to pay for actual health services. The leading insurers used 95 cents of every premium dollar on medical benefits, according to the consulting firm PricewaterhouseCoopers, a benchmark the industry referred to as a 95 percent “medical loss ratio.” That was in 1993, the year President Clinton proposed comprehensive health reform. Within 12 months the insurance industry had torpedoed the plan and reform was dead. Experts correctly forecast it would be many years before Washington tackled the issue again.

Ever since, health insurance executives have pursued mergers, acquisitions and initial public offerings that have turned the for-profit health insurance industry into a juggernaut. Wall street investors cheered as private, for-profit companies grew at a feverish pace. CEOs spent lavishly on sales and advertising to win market share away from home-grown non-profits that traditionally had low marketing costs. In response, non-profits had to behave more like for-profits, stepping up spending on sales and marketing and intensifying efforts to exclude the sick.

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Along the way, health insurers’ medical loss ratios plummeted even as medical costs and premiums grew faster than overall inflation. By 2007 investor-owned health insurers had reduced spending on actual medical care to 81 percent of premiums collected, according to the analysis by PricewaterhouseCoopers, which often consults with the health insurance industry’s main trade group. The remaining 19 percent of premiums went to profits, marketing, executive salaries, administrative expenses, sales commissions, and the cost of weeding out sick people whose conditions might make them unprofitable to insure. Although the PricewaterhouseCoopers study gives an average for major investor owned insurance companies, other studies have found that in the individual and small group markets smaller insurers routinely have medical loss ratios that are much lower. A recent study of these markets found many as lowas 60 percent. By comparison, the public Medicare program has consistently had a benefit ratio greater than 97 percent since 1993.

The following chart neatly illustrates the problem:

Why has your health care gotten worse over the last decades since the insurance companies killed health care reform? Wall Street. Why have your premiums skyrocketed while they deny more of your care? Wall Street. Why are more Americans going bankrupt and dying every day because the insurance companies refuse to insure them? Wall Street.

Making sure the insurance companies spend at least 90% of your premiums on your health care is a start to fixing this problem. It’ll at least curb Wall Street’s influence over your health. Making insurers compete with a public health insurance option which, like Medicare, could spend 97% of its premiums on your health, would really fix this problem.

Of course, Joe Lieberman in the Senate is busy making sure the bill that body passes is as good for private insurance as possible. It’ll be up to the House of Representatives and leadership in the Senate to make the bill better for us when it gets to conference.

(also posted at the NOW! blog)

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