New Report Shows How Much Health Insurers Actually Spend on Care

Insurers can increase efficiency and improve patient care

Arizona PIRG

With Americans increasingly concerned about rising health care costs, the Arizona Public Interest Research Group (Arizona PIRG) today released a report finding that health insurers can cut overhead and increase patient care.  The report, More Bang for the Health Care Buck: How an Efficiency Standard for Health Insurers Can Reduce Overhead and Deliver More Patient Care, examines how much health insurers spend on health care benefits, rather than administrative overhead.  It concludes that an efficiency standard requiring insurers to spend 85% of their revenues on patient care is a realistic, achievable standard that will reduce the cost of health care and provide higher-value coverage.

According to Arizona PIRG, when consumers buy health insurance, they have no guarantee of a fair return on their health care dollar.  Arizona PIRG continued to say that premiums should go primarily towards care, but they sometimes go disproportionately to administrative overhead instead.  While some administrative costs are inevitable; insurers also spend billions of dollars attempting to shift costs onto providers, and processing duplicative, overly-complex paperwork. To encourage efficiency and get costs under control, some states have considered legislation that would require insurers to spend 85 percent of the premiums they take in on health care, rather than administrative costs, profits, and other expenses. 

“Our research surveyed health plans across the nation, to see how much spending was going to care and how much was being chewed up by overhead,” commented Diane E. Brown, Executive Director of Arizona PIRG.  “Arizona PIRG found that insurers large and small, for-profit and non-profit, can spend 85% of premium dollars on patient care, by making achievable improvements in efficiency.  In fact, almost half of the nation’s insurers already meet that requirement.”

Among the report’s findings:

• Many insurers, small and large, already meet the 85% standard, proving that it is an attainable, practical requirement.  Almost half – 47% – of nationwide insurers already meet this standard.

• Of the 53 surveyed insurers, we found only three that spent less than 75% of revenues on patient care, suggesting that moderate improvements in efficiency would allow most noncompliant insurers to meet an 85% standard.

“Setting an insurer efficiency standard just makes sense,” Brown concluded.  “Our research shows that the industry can comply with an 85% standard – which will bring down costs and improve our health at the same time.”