© 2005 by Health-Insurance-Info.net
|
When someone asks an insurance company to pay a bill, this is called a "Claim." The "Medical Loss Ratio" is the amount that an insurance company pays for claims divided by the premiums that people paid for insurance. For example, if an insurance company pays an average of 80 cents in claims for every dollar it collects in premiums, then its medical loss ratio is .80. "Administrative Cost" is the flip side of the medical loss ratio. Administrative cost is the difference between what an insurance company collects in premiums and what it pays for claims. Administrative cost pays for claims processing, underwriting, marketing, utilization review, building up reserves, general management, and profit. Administrative cost is often shown as a percentage of the premium and ranges from 5% to 50% or more. For example, if an insurance company pays 20 cents for administrative cost for every dollar it collects in premiums, then its administrative cost is 20%. A low administrative cost generally means that an insurance company is efficient. Consumers get more dollars of covered services for the premiums they pay. However, there is a bigger picture. A better measure of efficiency is how much health insurance contributes to people's health for the premiums they pay. This is not always the same as the most dollars of services paid per premium dollar. Some administrative costs can help you to get more for your money. For example, some administrative costs are used to help an insurance company negotiate lower prices for services or to develop programs to improve your health. Company "A" that pays $100 per x-ray may have lower administrative costs than company "B" that pays $60 per x-ray, but company "B" may provide more health for your premium dollar. Administrative cost is a big issue in the public policy debate concerning national health insurance in the U.S. "National Health Insurance (NHI)" is a national system of health insurance, generally with a single governmental payer and public financing. Many countries, including Canada and the United Kingdom, have national health insurance. The U.S. does not. People who support NHI for the U.S. say that administrative costs in the U.S. are high compared to those in countries with NHI. They note that Medicare has relatively low administrative costs and say that the U.S. would benefit from reduced administrative costs with NHI. People who do not support NHI for the U.S. say that it is difficult to measure administrative costs consistently. They also often say that NHI would reduce consumer choice, access, and competition -- outweighing any benefit from reduced administrative costs.
|
