AUSTIN – Texas health insurers pay care providers just 72 cents of each dollar they collect in premiums from small employers, with the rest going to overhead, profits and taxes, according to a study by a think tank that advocates for the poor.

For larger employers, the health underwriters paid out more – an average of 84 percent of premiums paid between 2003 and 2006.

Still, the percentage of claims paid by the industry in Texas appears to be lower than nationwide, says a report to be released today by the Center for Public Policy Priorities.

"Some of these insurance companies spent a surprisingly low percentage – some less than half – of Texans' premium dollars on medical expenses," the report says.

The center, which advocates for the poor, has urged state lawmakers to strengthen regulation of health insurers, though prospects do not appear bright as this year's legislative session winds down.

Bills setting minimum payouts for medical claims for health carriers have gone nowhere. Even measures requiring only that carriers disclose their total payouts, known as loss ratios, face an uncertain fate.

"It illustrates the death grip that the insurance industry has over public policy in this state," said former state District Judge Scott McCown, the center's director.

He said employers and consumers should be able to easily find information on a health insurer’s loss ratio, though he said it took the center four months, using the state’s open records act, to obtain premium and claims data. Health insurers voluntarily report the data annually to the Texas Department of Insurance.

“Why isn’t this stuff on the Internet, just like gas mileage and fuel efficiency numbers that the EPA posts,” McCown said. “It’s not the only thing you made a decision on but it’s a big factor.”

Industry spokesmen said they don't object to disclosure, as long as information is properly labeled and explained. However, they said more transparency won't reduce factors driving up health care costs, such as aging, technology and overuse of tests and some services.

Insurers and some lawmakers say minimum loss ratios would only drive health insurers from the Texas market, reducing competition.

"Focusing on medical loss ratios diverts attention from the real issue," said Darren Rodgers, president of Blue Cross Blue Shield of Texas, the state's largest health insurer. "The costs of the major items that most people think of as health care costs are rising rapidly, which translates directly into higher health insurance costs."
Jared Wolfe, executive director of the Texas Association of Health Plans, said proposals to make public an insurer’s loss ratios “have been brought forward by the [Texas] Medical Association for a reason. They want to use it as a political tool,” to sully insurers’ reputations. He said items counted as “administrative” include costs of setting up hospital and doctor networks, 24 hour nurse lines and educating diabetics about managing their disease.

Stacey Pogue, author of the study by the Center for Public Policy Priorities, said many groups want loss ratios to be disclosed and aren’t carrying water for doctors.

“This is important information that will empower consumers to be better shoppers in the market,” she said.

The study is almost a last-gasp effort by state advocates of health care reform, who nearly a year ago launched a push for tougher regulation of the private market.

About half of Texans obtain coverage through employer-sponsored plans and of those, half work for big corporations with self-insured health plans that under federal law can't be regulated by a state.

Still, with one in four Texans uninsured, critics have focused on what they say is weak oversight by the Texas Department of Insurance of the so-called fully insured market, in which employers don't self-insure.

So far, authors of an insurance bill working its way through the Legislature have resisted appeals for tougher policing of health plans. Other proposals for tighter limits on rates and minimum loss ratios are all but dead.

The center, one of 17 groups seeking private market reforms, says it tried to examine insurers' administrative costs but ran into roadblocks.

The companies aren’t required to report loss ratios to the department. And though most voluntarily submit premium and claims data for the department’s annual “Texas Group Accident and Health Insurance Survey,” the department asked for an attorney general’s opinion before it would release surveys, McCown said.

What the center eventually obtained and analyzed offers only a peek at insurers' payouts. The department doesn't verify the data submitted and doesn't tabulate information about the individual market, said the study author Pogue, a former state Medicaid official.

She found that for small employers (two to 50 workers), the industry had an average loss ratio of 73 percent in 2006.

In other words, insurers paid out 73 percent of premiums to cover medical bills – well below the 87 percent paid out that year by the private health insurance market nationwide.

The industry's national lobbying group, America's Health Insurance Plans, often cites the higher figure as appropriate because administrative costs include wellness and consumer education efforts as well as network and information technology development costs, marketing and profit.

For larger employers (51 or more workers), the center found Texas carriers' loss ratios to be more volatile: 84 percent in 2003 and 85 percent the next year, then dipping to 76 percent in 2005 and rising to 91 percent in 2006.
“You’d expect the highest ratio in the large group market, where the administrative costs per person are lower,” Pogue said.

Also, carriers selling to small employers generally do “medical underwriting,” where they review people’s health status and history to set premiums. That’s far less common with larger groups, she said.

Blue Cross Blue Shield of Texas was the only major insurer that had a loss ratio lower than the average for the small-employer market in each of the four years, Pogue found. From 2003 to 2006, it paid out an average of 66 percent of premiums to care providers.

Rodgers of Blue Cross, though, said, "Our administrative costs in 2008 were about 10 percent of premium and premium equivalent, not even close to the 34 percent reported in the survey."
He said it’s “incorrect to assume” that anything other than a provider payment is traditional overhead.

Aetna Life Insurance Co., the fourth-biggest health insurer in Texas, paid out a four-year average of 67 percent. Major market players United Healthcare, Humana and Principal Life had four-year averages of 76 percent, four percentage points above the small employer market average.

United, the No. 2 health insurer, paid out 88 percent of premiums in the large employer market, also four percentage points above that market’s average loss ratio over the four years. No. 1 Texas insurer Blue Cross, meanwhile, averaged 73 percent — significantly below the large employer market’s four year average.

Pogue said it’s a challenge to get consumers information they need. Health-maintenance organizations have been reporting loss ratios for some time, but they now cover only 1 million Texans. The rest of those not with self-insured employers, 4.5 million are in preferred provider organizations, which don’t have to report, she said.

Wolfe of the insurer’s group said the industry is willing to report loss ratios “if it’s fairly presented and calculated.”

It matters how expenses are labeled, he said.

“You’ll never meet somebody who’s like, I want more administration in my life,” Wolfe said. “When you represent these things, especially to the public in a state report, that this is ‘administration,’ it carries with it a negative connotation that I don’t think is necessarily fair.”
Health insurers' overhead