Medical loss ratio rules could pay insurance rebates to millions

director of department of health and human services

Health and Human Services director Kathleen Sebelius announced new rules establishing the minimum amount of premium revenues insurers must spend on patient care. Image: CC US Mission Geneva/Flickr

New regulations on the minimum amount of money from premiums health insurance companies must spend on patient care were released Monday. The spending minimum is known as the medical loss ratio requirement of health care reform, which intends to force insurance companies to reign in rising administrative costs being passed on to consumers. Insurance companies that don’t meet medical loss ratios must pay rebates to their customers.

Premiums must be spent on patient care

Minimum medical loss ratios issued by the Obama administration require large, in-group health insurance plans to spend at least 85 percent of money collected from premiums on patient care that includes doctor and hospital visits. Individual and small-group plans must spend 80 percent. Starting in January 2011, only 15-20 percent of insurance company spending can go toward salaries, bonuses and marketing. Health care reform requires insurance companies to report spending  publicly. Before health care reform, insurance companies were typically focused on limiting spending on medical costs as much as possible to please investors. At the announcement of the regulations, Health and Human Services Secretary Kathleen Sebelius said the rules “are an important step to hold insurance companies accountable.”

Lobbyists try to define medical expenses

The new rules on medical loss ratios were formulated using recommendations from the National Association of Insurance Commissioners (NAIC). The insurance industry’s trade organization, America’s Health Insurance Plans, lobbied for the broadest  definition of medical spending, including the cost of paying claims, signing up doctors and running call centers. Insurance industry lobbyists succeeded in getting such items as spending to reduce medical errors and investing in medical record technology classified as medical expenses. One coveted item they could not get classified as a medical expense  was payments to brokers and insurance agents.

Medical loss ratio rebates

Once the medical loss ratio rules go into effect, if insurance companies don’t spend the required percentage on medical care they must issue a rebate either to the policyholder or their employer. The Department of Health and Human Services estimates that 45 percent of people who buy their own coverage are in plans that currently don’t meet the 80 percent standard.  According to HHS, about 9 million people could be eligible for rebates–an average of $164 per person that could cost the insurance industry $1.4 billion in 2012.


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