In another major win for consumers, the U.S. Department of Health and Human Services (HHS) has denied Texas’ request to delay implementing part of the health reform law. The rule at issue, known as the Medical Loss Ratio (MLR) rule, requires that insurance companies spend at least 80 percent of their customers’ premium dollars on actual medical care — not on marketing, profits, advertising and overhead — and to refund the difference if they fall short.

The rule went into effect on January 1, 2011, but Texas and several other states have applied to phase-in the rule so that it would not be fully in effect until 2014.  In Texas, 22 of the state’s 34 insurers did not meet the 80 percent standard in 2011 for their customers who buy insurance policies on their own, meaning these policyholders stand to receive an estimated $160 million in rebates by August 1, 2012 in the form of refund checks or credits toward premiums. HHS estimates that Texans will see $476 million in rebates over the next three years. The Fort Worth Star-Telegram explains what this means in more concrete terms:

The largest rebate, $89.6 million, will come from Blue Cross Blue Shield, by far the largest writer of individual health policies with about 55 percent of the market. That rebate comes to an average of about $220 for each of the insurer’s 407,187 covered lives.

The Texas Department of Insurance, like insurance departments in other states, argued that the rule could cause insurers to flee the market rather than meet the standard or pay rebates, leaving fewer choices for consumers who buy coverage on their own.  But in our public comments, advocating for the immediate enforcement of the MLR provision, Consumers Union noted that:

  • Texas carriers are financially well-positioned to provide rebates.
  • Carriers covering more than 93 percent of the individual market stated that they do not intend to exit the market.
  • At least 12 carriers are changing their business practices to achieve an 80% MLR.
HHS officials agreed, saying there was not a “reasonable likelihood” that implementing the rule would destabilize the insurance market for individuals who buy their own coverage.  As we turn our attention to Wisconsin and North Carolina, the final two states seeking to delay this provision, we thank the consumers who have shared their personal health insurance story.  We’ll continue to work to make sure consumers get the full benefits of the health reform law.