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A recent article in HealthLeaders (April 2009) addressed the issue of regulating the commercial health insurance industry by setting provisions for medical loss ratios. Medical loss ratio is the fraction of revenue from a health insurance plan’s premiums that goes to pay for medical services. In California and other states, legislation has surfaced to force insurers to spend a given level of revenue on direct medical care. For example, last year in California a bill was introduced which would have required an 85% medical loss ratio for health plans, forcing insurers to spend at least that level of revenue on medical care. This bill was vetoed by Gov. Schwarzenegger. However, would this have improved the value received by patients from their health insurance plans?

Physicians and providers typically believe setting minimal limitations on medical loss ratio will squeeze resources out of the administration costs of insurance – costs associated with disease management, care coordination, information technology and customer service – channeling resources into paying for direct medical care; the medical care the patients and employers who purchase the plans intend to receive.

The insurance industry argues that medical loss ratio does not accurately reflect whether quality care is paid for on behalf of the enrollees or not. They are argue that this type of regulation will drive up premiums, as medical loss ratios vary from plan to plan, and will limit the plans which they are able to offer.

As the health insurance industry continues to consolidate and the general public continues to express dissatisfaction with their commercial health insurance carriers, what are the accurate measures that can be used to ensure value in the commercial health plans we purchase?

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Bridget Morehouse PT, MBA is a consultant with Steffes and Associates, a rehabilitation consulting firm based in Wisconsin.