July 22, 2010 / 10:42 PM / in 9 years

Insurers' lobbying threatens spending rules-report

*Stricter insurance spending rules loom next year

*Insurance industry wants rules weakened - report

*Six big insurers would have refunded $1.9 bln in 2009

By Jon Lentz

WASHINGTON, July 22 (Reuters) - Insurers are trying to undermine the healthcare reform legislation by lobbying the rulewriting process that would limit insurers’ spending on non-medical costs, a consumer advocacy group said on Thursday.

The group Health Care for America Now issued a report saying insurers are waging a battle to make the rules as broad as possible, simply to maintain their profits.

“The insurance companies want to change the definition of medical care to include things that aren’t medical, and to include things that never were considered to be medical,” said Ethan Rome, director of Health Care for America Now, at a press conference also hosted by two Democratic lawmakers.

The insurance industry, however, said the rules must be flexible enough so they can still invest in wellness initiatives and other programs that might not count as medical costs.

Insurers, lawmakers and reform advocates have been waging a public fight since the healthcare overhaul was approved in spring, with the industry trying to preserve its profits and the Obama administration fighting attempts to weaken the reforms.

A key provision calls for insurance companies to spend at least 85 cents of every premium dollar on actual medical care rather than salaries, overhead and other administrative expenses.

That spending ratio — called the medical loss ratio (MLR) — has historically been hailed by Wall Street as a solid sign of profitability.

Regulators are currently drafting the recommended rules, which are due by the end of the year. Consumers will get a rebate if insurers spend less than the mandated amounts on care.

According to the report the advocacy group issued on Thursday, health insurance companies reduced the share of spending on medical costs for years while profits and executive pay increased.

The report said insurers are trying to protect those profits by lobbying rulewriters to keep broad the definition of medical care.

“The reason they don’t want stricter regulations is simply because so many companies have been making outrageous profits by gouging American families,” Sen. Al Franken said at a press conference announcing the report.

But the industry said strict regulations could exclude programs that are beneficial to customers.

“The goal is to protect patients’ access to valuable health care services that improve their quality of care,” said Robert Zirkelbach, a spokesman for the industry group America’s Health Insurance Plans.

A lot of money is at stake for the industry.

Nearly $1.9 billion would have been refunded in 2009 by the six largest for-profit health insurance companies had the rules been in effect, according to an Oppenheimer & Co analysis cited in the report.

UnitedHealth (UNH.N) would have spent $867 million in refunds last year, the report said.

In a sign that the medical loss ratio is not improving for patients ahead of the implementation of the reforms, UnitedHealth announced this week that it spent 81.5 percent of premium revenue on medical care in the second quarter, a decrease from 83.6 percent a year earlier.

On Tuesday, Sen. John D. Rockefeller IV wrote a letter to the president of the National Association of Insurance Commissioners — which is drafting the rules — urging the exclusion of services, such as fraud detection.

“As you continue to be deluged by letters, comments, and analyses from the insurance industry, I ask you to recall that the purpose of the new medical loss ratio law is to give the citizens and businesses of your states the health care coverage they pay for and deserve,” Rockefeller wrote.

Reporting by Jon Lentz; additional reporting by Lisa Lambert

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