Neologism: Administrative Loss Ratio

In the US Healthcare world, everyone calls the money spent on looking after patients “Medical Loss Ratio”. The new health care law requires (approximately) that the MLR be at least 85% (meaning, more or less, that at least 85% of insurance premiums go to spending on care, as opposed to administration or profit).

All this is very well, but why do they call it Medical Loss Ratio? Why is looking after me (or you) called “Medical Loss”, when the whole point of a health care system is to look after me (or you)?

What they should do is call that money “Healthcare Expenditure” (and some of it might even be “Wellness Investment”)… and instead we should talk about “Administrative Loss Ratio”. When the insurers take our healthcare dollars and overspend on administration (or corporate profit), then that is a loss ratio – not the healthcare itself.


stefanoq said...

Excellent suggestion, Richard. Administrative overhead is a great concept you can use to compare the relative effectiveness of any company or organization. Sales and marketing can drive growth in services and market share... at a cost, of course. So can lobbying. Nor-for-profits even spend precious donor dollars on fundraising, for example. That's not to say that any of this is good or bad, just that these expenses can be significant and do not contribute directly to the provision of products or services. And a ratio is probably the best way to think about these expenses.

Gregg Stern said...

OK, "wellness" is out of the picture.... but its a "loss" because they were praying that no one would ever become ill and require care!