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Health Reform: Holding Insurance Companies Accountable, Getting A Better Deal On Your Coverage

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The spiraling cost of health insurance is a huge concern for hardworking Americans and businesses, and the new national health reform law includes a key provision to make sure you get better value for your insurance dollars. This new rule in the Affordable Care Act requires health insurance companies that don’t spend their customers’ money wisely to give them a rebate–with as much as $1.4 billion due to about 9 million consumers starting this year.

What is this new rule?

The term “Medical Loss Ratio” refers to that portion of your insurance premium that an insurance company spends on medical care, such as doctor visits and hospital bills. To make sure that the lion’s share of your premium goes to actual medical costs, and not overhead, marketing or excessive profits, the new Medical Loss Ratio rule requires:

  • Value: Health insurers must spend at least 80 percent of premium dollars on medical care or activities that improve the quality of care. Put another way, the rule says that for every dollar policyholders pay in premiums, a company must spend at least 80 cents of that dollar for actual healthcare, and can’t use more than 20 cents for non-healthcare items like salaries, broker commissions, advertising, claims processing and profits.
  • Accountability: Health insurers must publicly disclose how they spend premium dollars. Companies will file reports beginning in June 2012 detailing how much they spent each year on medical care and quality improvements, and how much they spent on various categories of administrative costs. The Department of Health and Human Services will post the reports on its website.

What does this mean to you?

If a health insurance company fails to meet the standard–meaning they spent too much of premiums on their administrative costs and profit–they must rebate the difference to customers in the form of refund checks or a reduction in future premiums. Companies must pay the first round of rebates by August 1, reflecting any excess premiums they collected in calendar year 2011.

If you are eligible for a rebate, your health insurer or your employer will send you a notice explaining when and how you will receive it. Look for those notices this summer. You can also check www.healthcare.gov to find out how your insurance company spent your premium.

The fine print.

The 80 percent standard applies to individuals and families who buy coverage on their own (not through an employer) in the ‘individual market,’ and to small businesses and other groups who buy in the ‘small-group market.’ For certain policies sold in the ‘large-group market,’ which is mainly when your coverage comes from a large employer, the standard gets even tougher–85 percent must go to medical costs

Also, the standards refer to the total amount an insurer spends on average for all the people it covers in a certain group in each state. So, if you have an individual market plan, a company might not spend at least 80 cents on the dollar for your medical care, as long as the total amount it spends for all its customers in that group is at least 80 percent.

Will this bring insurance costs down?

Estimates show insurers would owe up to $1.4 billion if the rule was in effect in 2010. As companies adjust their business models and trim administrative overhead so that they don’t go over the 20 percent mark, rebates are expected to be less. And that is the new law’s goal: Pressure health insurance companies to be more efficient.

In fact, we’ve already seen examples of the rule causing insurers to lower premiums. In Connecticut, Aetna lowered rates by up to 19.5% for 15,000 customers to meet the standard and it lowered rate increases for small businesses by 3.2 percent. In West Virginia, Highmark Blue Cross Blue Shield reduced December premiums by 75 percent, a savings of $10.5 million for 4,200 small businesses.

In previous years, some insurers have met the standard, while others have spent up to 40 percent or more of premiums on their administrative costs, particularly for plans sold to consumers who buy coverage on their own. The new rule gives these insurers the incentive to operate more efficiently, and leaves them room to turn a profit.

What’s at stake now?

Unfortunately, some insurance industry allies in Congress and in state governments are trying to gut this rule and wipe out most of it benefits to consumers. We’re fighting these efforts, and we hope you’ll take part so that all consumers can be sure that when they pay their monthly premiums, they are getting value and accountability in return.

If you’d like to lend your voice and support our work to hold insurers accountable, take action here.

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