California's Latest Threat to Insurer Profits

(MoneyWatch)  The Golden State's branch of the AMA is pushing a bill that would require California health plans to maintain "medical-loss ratios" of 85 percent or higher. According to the California Medical Association, nine of the state's major health insurers had loss ratios lower than that level. Had every insurer met the proposed limit, they would have spent more than $1 billion on benefits in the year ended June 30, 2007.

Medical-loss ratios are one of those through-the-looking-glass terms beloved by the health-insurance industry. The figure refers to the percentage of insurance premiums spent on claims -- that is, on actual healthcare expenses. To the insurance industry, such spending is a "loss" because it eats into profits. To just about everyone else, of course, such spending is the reason the industry exists in the first place.

Of course, the CMA isn't exactly impartial on this particular issue, because additional health-plan spending largely flows into the pockets of its members. And while there's definitely a public-policy argument to be made on the question of how much insurers actually spend on healthcare, it's far from clear that an organization as self-interested as the CMA should be the one advancing it. (Not to mention the fact that it seems a bit unsporting to kick insurers when they're down and their future looks almost unreservedly bleak.)

The bill in question -- SB 1440, sponsored by state senator Sheila Kuehl -- is apparently still stuck in committee and doesn't seem to be going anywhere particularly quickly. For a critical analysis of this sort of approach from the right side of the aisle, StateHouseCall.org has the goods.

Update: It's also worth noting that the California legislature also recently passed a bill giving state regulators additional power to fine insurers who don't pay hospitals and doctors.

Pickpocket image via Flickr user matiasjajaja, CC 2.0