Nov. 3, 2009 -- A significant portion of health insurance premiums go not for actual medical care but for private jets, generous CEO salaries and underwriters who decide when to drop patients who become too expensive, according to a Senate committee report.
Sen. John D. Rockefeller, D-W.Va., chairman of the Senate Committee on Commerce, Science and Transportation, wrote to 15 of the biggest health insurance companies in August, asking them to provide information on how much of policyholders' monthly premiums was spent on medical care versus the amount that went to administrative costs and company earnings.
Such figures are known in insurance industry-speak as "medical loss ratios." But when insurance companies balked, saying the information was confidential and proprietary, Rockefeller's investigators went digging through public documents and found that much of policyholder premiums was going to nonmedical costs.
The insurance industry has long pointed to federal data that says about 87 percent of every dollar that people spend on premiums goes toward actual medical care, but Rockefeller's investigators found the average for the top six insurance companies is closer to 82 cents on the dollar for medical care.
That five-point difference represents billions of dollars.
And when investigators broke down the information by insurance type, they found that people who buy individual insurance from those companies rather than being part of a small or large business, get the least bang for their buck.
On average just 74 cents of every premium dollar for individual coverage goes to medical care.
Coventry Health Care had the lowest figure at 66 cents.
It's Easier to Buy a Car
Rockefeller contends that consumers get more information from window stickers on new cars for sale than they do from insurance companies.
"Instead of disclosing medical loss ratios to help consumers and small business owners make informed health care choices, health insurance companies have hidden them behind a wall of corporate secrecy," he wrote, adding that the committee found Cigna appeared to have submitted inaccurate state insurance regulatory filings for its activities in certain areas.
Insider Shares Industry Practices
None of this surprises Wendell Potter.
He is a former Cigna insurance company executive turned whistle-blower and has testified before the committee about industry practices.
Potter has long said that insurers spend less than they claim on medical care and spend a big chunk of money to actively seek ways to avoid paying claims.
Rockefeller's letter also said a large portion of money consumers pay for premiums is spent on analyzing claims.
According to Potter, companies will carefully review an individual's policy to see if the insured has omitted a minor illness or pre-existing condition, and will use that as a justification for cancellation.
In an interview with ABC News Monday, Potter said insurance companies drop consumers who cost too much -- "to get rid of any individuals or customers that might cost more money than they take in in premiums."
In the small group market, Potter has described how insurers "purge" small businesses with high health care expenses by increasing premiums to unsustainable levels, Rockefeller wrote.
According to small business owner Bruce Hetrick, that happened to him. He testified about his experiences before a House committee.
Hetrick said he was priced out of his insurance when his wife, who was his business partner, got cancer .
"A few months before her death, our health insurance renewal came up. Lo and behold, the quoted increase for the health insurance portion of our benefits was a whopping 28 percent. That would have been devastating to our business and our employees," Hetrick said.
After Hetrick's wife died, he was told by the company that the rates would rise only 10 percent, according to published reports.
Premiums Also Fund Some Perks
What else is your premium dollar being spent on, if not on health care?
Potter points to the CEO's multimillion-dollar salaries and the perks of that job.
In the Monday interview, Potter described the industry's corporate jets.
"A favorite jet is the Falcon series made by a French manufacturer. Very luxuriously equipped," he said. "The big leather seats, polished mahogany and other fine wood. Usually for a long or short trip, there's a flight attendant who serves you breakfast, lunch or a snack or drink. If it's food, often it will be on china, gold rimmed."
Insurers Dispute Report's Findings
A group representing the health insurance industry said Monday that Rockefeller and his committee are mischaracterizing the way companies spend their customers' health premium dollars.
America's Health Insurance Plans, a health insurance industry group, argues that the quality of health care cannot be judged based on a single number -- the medical cost ratio.
It says a low medical cost ratio may be deceiving because nonmedical costs in every dollar can include beneficial, cost-saving measures such as fraud reduction or round-the-clock nurses.
AHIP also stands by the federal data compiled by the Centers for Medicare and Medicaid Services, which says that overall in the industry, 87 cents of each premium dollar goes to medical care.
Cigna said its numbers are even better than that.
In a statement to ABC news, the company, which said it had only just received a copy of Rockefeller's letter and hadn't been able to conduct an in-depth review, said that at least 88.8 percent of premiums pay for medical services for those who buy insurance through small and large businesses. For individuals, Cigna claims that 93.1 percent goes to medical care.
Aetna, Coventry, Humana, UnitedHealth Group and WellPoint did not respond to ABC News' requests for comment.
Implications for Congressional Debate
The health care reform bills currently under debate on Capitol Hill take up the issue of medical loss ratios.
The House bill would require that health insurance companies spend a minimum of 85 percent of every premium dollar on health care.
The Senate bill has no such minimum requirement, but Rockefeller has pledged to push for one when the bill comes before the full Senate.
Both the House and Senate bills do contain provisions that would require health insurance companies to provide consumers more information on how their premium dollars are being spent.
On Monday, Republicans on the Senate Commerce Committee had not yet seen the letter to Cigna, even though ranking minority member Sen. Kay Bailey Hutchison was copied on the letter. They could not comment on the specific data presented but said Rockefeller's investigation all year has been "a partisan attempt to get support for a public option in the health care debate."