Medical loss ratios affect insurance company stock values.Health insurer Centene's profit beats as medical costs fall
U.S. health insurer Centene Corp (CNC.N) reported a better-than-expected quarterly profit, helped by lower medical costs in certain patient populations and the acquisition of rival Health Net.
The company's health benefits ratio, or the amount it spends on medical claims compared with its income from premiums, improved to 88.7 percent in the first quarter from 89.9 percent a year earlier
Anthem Falls As Medicaid, Obamacare Results Pressure Margins
The shares fell 2.8 percent to $142.91 at 11:24 a.m. Wednesday. Anthem spent 81.8 cents of every premium dollar on medical claims in the first quarter, up from a medical-loss ratio of 80.2 percent a year earlier, according to a statement.
Comment by Don McCanne of PNHP: Todays message is just a reminder of one of our problems that the Affordable Care Act (ACA) did not fix. A well-functioning health care financing system should be designed to obtain maximum value by spending our funds on health care and not wasting them on excessive administrative services and on profits that add no value to health care. Yet ACA perpetuates policies that turn these priorities upside down, to the pleasure of Wall Street.
Centene is reporting greater profits attributed to a lower percentage of revenues spent on health care compared to the year before - the medical loss ratio decreased from 89.9 percent to 88.7 percent. A comparable medical loss ratio for Medicare would be about 98 percent - only 2 percent is used for administrative services, and there are no profits. Spending less on patient care and retaining more for Centenes own administrative services and for profits, Wall Street deems to be an improvement.
In contrast, the percent of revenues that Anthem spent on health care increased - the medical loss ratio increased from 80.2 percent to 81.8 percent. For insurers to spend more on health care is considered to be bad news on Wall Street, and thus they punished Anthem by bidding down the price of their shares.
Since these insurers are giving us the opposite of what we want, why are we leaving them in charge of our health care dollars? Lets fix Medicare and expand it to cover everyone. Yes, we would have a very high medical loss ratio - with 98 percent of our Medicare tax revenues spent on patient care - but it would be a much better deal for all of us - except for the insurance executives and Wall Street rent-seekers.
The IRS handles collections for medicare. The SSA collects some premiums as well. Health and Human services owns the buildings and handles accounting.
Medicare does not pay exise taxes that for profit insurance ccompanies pay (those count as administrative cost).
Medicare also deals with sicker paitents. If my insurance company spend 150 dollars on medical care and 150 on overhead they would be at 50%.
If I get cancer and they spend 100k on medical cost, then their loss ratio improves. Some marginal cost for overhead go up a bit bit the fixed cost stay the exact same.