Stanley Feld M.D., FACP, MACE Menu


What Is The Medical Loss Ratio?

Stanley Feld M.D.,FACP,MACE

Why did the healthcare insurance industry, big pharma, and the medical device industry sponsor a fund raiser for Democratic Senatorial candidate Martha Coakley in Washington D.C.?

She would represent the 60th Democratic vote in the Senate. The 60th vote in the Senate would prevent a Republican filibuster and assure passage of President Obama’s healthcare bill.

Why would the healthcare insurance companies want this bill to pass when President Obama promised the public that his healthcare reform plan would control the healthcare insurance industry abuses and profits?

President Obama’s healthcare bill is good for the healthcare insurance industry’s business!! How is it good for the healthcare insurance industry’s business?

The bill would force more people to buy healthcare insurance. The result would be an increase in profit. The healthcare companies are not bothered by preexisting illness because the increased actuarial risk will be subsidized by President Obama and ultimately the taxpayer.

President Obama’s healthcare bill permits the healthcare insurance industry to control the healthcare dollars. Its profits are protected by maintaining the present accounting standard for the calculation of the Medical Loss Ratio.

Few people understand the rules for calculating the Medical Loss. The rules for calculating the Medical Loss Ratio permits the healthcare insurance industry to rip off the purchasers of healthcare insurance. (The government, the employees and individuals). The healthcare insurance industry is the administrative service provider for all. It sets insurance premiums through the Medical Loss Ratio.

If the government wanted to do something significant to lower the cost of healthcare, it would change the accounting standards use to calculate the Medical Loss Ratio. A change in rules would decrease the grotesque profits made by the healthcare insurance industry.

The accounting methods for the Medical Loss Ratio are to the disadvantage of third party payers, patients and patient care.

The definition of Medical Loss Ratio is Incurred Claims divided by Earned Premiums. In order to provide a better idea of the true meaning of Medical Loss ratio it should be defined as the earned premiums divided by the incurred claim.

This accounting sleight of hand is to the healthcare insurance industry’s advantage not the public. The Medical Loss Ratio should reflect insurers’ expenses for paying claims. However, it also reflects overhead and investments that can be duplicated, inflated, and abused. The slide below indicates other expenses included in incurred expenses.



The greater the incurred expenses, the less money is available to cover medical expenses. The artificial Medical Loss Ratio justifies increases in premiums by the healthcare insurance industry to cover the decrease in money available to pay medical claims even as physician and hospital reimbursement decreases.

President Obama’s healthcare reform bills are not fixing the accounting standards that generate enormous profits for the healthcare insurance industry because of inflated incurred expenses at consumers’ expense.

What exactly are we paying for with our healthcare dollars? Sixty-five cents of every dollar goes to the healthcare insurance industry. Only fifteen cents of every healthcare dollar goes to physicians and twenty cents of every healthcare dollar goes to the hospitals.

There is something terribly wrong with this expense load.


George Axelrod, President Obama’s senior adviser does not understand these numbers. He said in a TV interview recently:

“One thing we ought to do, the House bill has in it provisions that — that says that if they fall below a certain level of return of these medical loss ratios — in other words, the amount of money that they spend on actual health care, that they — they need to rebate some of that money to consumers. That seems like a good idea.

Year after year taxpayers have paid higher and higher premiums to the healthcare industry for inflated incurred expenses. Most of the incurred expenses are for the healthcare insurance industry’s inflated overhead.

If Mr. Axelrod believes that the healthcare insurance industry will lower its incurred overhead expenses and give refunds to payers for premiums I have a bridge to sell him.

President Obama should be focused on the Medical Loss Ratio accounting standard. If he did the fair thing there would be no need for his disastrous healthcare reform legislation.

President Obama’s healthcare reform plan is not for the people by the people. It is for special interests. The special interests are government and its control as well as the profit of the healthcare insurance industry. It is not about patients, affordable care and improvement in the quality of medical care.

This is the underlying reason the healthcare insurance industry sponsored the
Washington fund raiser for Massachusetts Senatorial candidate Martha Coakley in order to maintain the sixtieth seat in the Senate.

President Obama’s healthcare reform bill is good for the healthcare insurance industry’s business.


The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

  • Michael Kirsch, M.D.

    Stanley, I agree with the point that you suggested at the end of your post that the moribund health care plan was more about government than about health. This is why the Democrats, in my view, were so zealous and trying to ram it through. If the government could (ultimately) take over health care, then everything would be in their reach. Amazingly, the Massachusetts electorate did not drink the Kool Aide.(BTW, I think you meant David Axelrod, not George.)

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