The 17% Solution for Primary Care?

Robert W. Morrow, MD


April 24, 2014

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Hi. This is Dr. Bob Morrow of the Transparent Medical Practice Blog. Welcome. Today I'm going to try to talk about something fairly simple. In the future, we will be talking about the Affordable Care Act and other aspects of our current medical scene. Today I want to talk about what I think is perhaps the central issue facing us that no one is talking about. I call this the 17% solution, but the key point here is the concept of the loss ratio.

Everybody who knows what a loss ratio is, please raise your hands. Right. That's what I thought. Basically, the commercial insurance describes whatever it pays out in the terms of settlements as the loss ratio. If they take in $100 and they hand out $80, they have a loss ratio of 80%. Pretty straightforward.

What does this means in the healthcare industry? A little-known fact is that Medicare has a loss ratio of 97.8%, which means it pays out virtually all of its money as healthcare. The commercial industry, as you would guess -- and instantiated by law -- has an 80% loss ratio. It had been much lower, but the law has fixed it at 80%. This is a situation in which 80% is spent on healthcare, 20% on administration.

Was it always so? No. Back in the late 1980s and early '90s, the loss ratio of the commercial industry was 96%. They were really happy because they got to play the float with the money that they had and, of course, invest it in the market. That worked out very well for them. But then they decided, at the time of the collapse of the Clinton health plan in the early 1990s, to turn healthcare into a profit center instead of a call center -- meaning, instead of being not-for-profit it would become an area where financial interest could make a good profit. Indeed, they do. Ten years later, in early 2000 to 2003, their loss ratio had dropped from the high 90's to 80% or lower, some to 75%.

We now have the situation where the Affordable Care Act has limited commercial insurances to an 80% loss ratio. What would happen if they had limited them to a 96% or 97% solution? I would call that the 17% solution. We would have a ton more money for things. Granted, the Centers for Medicare & Medicaid Services say that they spend 4% of their monies on primary care. Accountable Care Organizations spend around 6% on primary care. If we were to increase the amount spent on primary care out of this extra 20% or 17% bonus, perhaps we wouldn't be the 17th out of 17 nations in the advanced world in terms of mortality and other major chronic illnesses. We do less well than 16 of the 17 countries. In fact, our infant mortality rate is 3 times higher than that in Finland. That was not true in the '80s.

You can figure out what caused the change. I'd love to hear your ideas on what we should do next to try to deal with this issue of the loss ratio and the loss to primary care.

Thanks. This is Bob Morrow, family physician in the Bronx, and from the Transparent Medical Practice Blog. I hope to talk to you again soon. I look forward to all of your comments.


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