Insurers Avoid Loss Ratio Limits by Shifting Profits to Provider Subsidiaries

November 2, 2021

Summary: Insurers don’t appreciate limits on their profits. So, to circumvent federal “medical loss ratio” rules, they buy up medical providers and send the excess revenues there. Voila, huge profits retained.

Profits swell when insurers are also your doctors.
Axios
July 16, 2021
By Bob Herman.

The big picture: Federal law caps health insurance profits to 15-20% of collected premiums, depending on the type of market. But there are no limits to how much profit a provider can keep. So if an insurer can steer its members toward its own providers, the company is able to keep a lot more of those premium dollars.

The bottom line: Insurers keep more of the premiums they collect when they also own the medical providers that are paid those premium dollars. And no insurer has expanded as aggressively into care delivery over the years as UnitedHealth.

Comment and Graph by: David Himmelstein and Steffie Woolhandler

UnitedHealth and other large health insurance firms have been buying up doctors’ practices and other health providers (e.g. Aetna’s merger with CVS). That lets insurers ship profits to their provider subsidiaries, skirting federal standards for medical loss ratios – the share of premiums they’re allowed to spend on administration and profit. In essence, allowing insurers to own providers is a loophole that makes loss ratio requirements meaningless.

As indicated in the graph below (based on the data Bob Herman reports), over the past decade – and especially since 2019 – UnitedHealth has greatly amped up its payments to itself.

For detail on the mechanics of how insurers’ double dipping is pushing up Medicare’s costs and accelerating its privatization see the September 30, 2021 HJM post on Medicare Advantage and DCEs.