New regulations issued by the Department of Health and Human Services require health insurers to spend 80 to 85 percent of consumers' premiums on direct care for patients and efforts to improve care quality, starting in 2011.
Officials say this "medical loss ratio" provision of the Affordable Care Act will make the insurance marketplace more transparent and make it easier for consumers to purchase plans that provide better value.
"Thanks to the Affordable Care Act, millions of Americans will get better value for their health insurance premium dollar," said HHS Secretary Kathleen Sebelius. "These new rules are an important step to hold insurance companies accountable and increase value for consumers."
Insurance companies currently spend a substantial portion of consumers' premium dollars on administrative costs and profits, including executive salaries, overhead and marketing. If insurance companies don't comply with the new rules, they will be required to provide a rebate to their customers starting in 2012. Beginning in 2011, the law also requires that insurance companies publicly report how they spend premium dollars, providing meaningful information to consumers.
In 2011, the new rules will protect as many as 74.8 million insured Americans, and an estimated 9 million Americans could be eligible for rebates worth up to $1.4 billion starting in 2012. Average rebates per person could total $164 in the individual market.
The medical loss ratio regulation outlines disclosure and reporting requirements, how insurance companies will calculate their medical loss ratio and provide rebates and how adjustments could be made to the medical loss ratio standard to guard against market destabilization.
"These rules were carefully developed through a transparent and fair process with significant input from the public, the states and other key stakeholders," said Jay Angoff, director of the HHS' Office of Consumer Information and Insurance Oversight. "As we build a bridge to 2014, when better, more affordable options are available to consumers, these rules will help make health insurance fairer for consumers now."
The Affordable Care Act required the National Association of Insurance Commissioners to develop uniform definitions and methodologies for calculating insurance companies' medical loss ratios. Insurance commissioners in every state have a responsibility to protect the interests of the general public, policyholders and enrollees within their respective states. The regulation certifies and adopts the recommendations submitted to the HHS secretary on Oct. 27 by the NAIC. It also incorporates recommendations from a letter sent to the secretary by the NAIC on Oct. 13.