Insurers Must Spend At Least 80-85% Of Consumers’ Premiums On Direct Care, Says HHS

Insurers Must Spend At Least 80-85% Of Consumers’ Premiums On Direct Care, Says HHS

Health insurance companies will have to spend a minimum of 80 to 85% of premiums on direct patient care, the HHS (US Department of Health and Human Services) announced. HHS Secretary Kathleen Sebelius said new medical loss ratio regulations will make the insurance marketplace more transparent.

The regulation for a minimum of insurance premium money spent directly on patient care is called the medical loss ratio provision of the Affordable Care Act. It will be easier for members of the public to buy insurance plans that provide better value for money.

Sebelius said:

“Thanks to the Affordable Care Act, millions of Americans will get better value for their health insurance premium dollar. These new rules are an important step to hold insurance companies accountable and increase value for consumers.”

According to HHS, a significant number of health insurance companies charge too much for administrative costs, executive salaries, marketing, overheads, and other costs unrelated to direct patient care – too much of it comes from consumers’ premium dollars.

An 80 to 85% minimum, which HHS says is thanks to the Affordable Care Act, will make sure policyholders get more value for their premium dollars. This minimum will start in 2011. Companies that do not do this will have to give consumers a rebate the following year.

HHS says up to 74.8 million Americans will benefit from this new rule. Approximately 9 million Americans may be eligible for rebates worth $1.4 billion as from 2012. Average rebates are thought to be around $164 dollars per person.

Included in the medical loss ratio regulation are how insurance companies should calculate their medical loss ratio, how to provide rebates, and how alterations can be carried out to the medical loss ratio standard so as not to destabilize the market.

As from next year, insurance companies will have to report publicly how the premium dollars are being spent, with meaningful information consumers can understand. Insurance companies that do not meet the 80% minimum of premium dollars spent on medical care and quality improvement activities will have to give them policyholder rebates, starting in 2012.

Jay Angoff, Director of the Office of Consumer Information and Insurance Oversight at HHS, said:

“These rules were carefully developed through a transparent and fair process with significant input from the public, the States, and other key stakeholders. 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 National Association of Insurance Commissioners will have to develop standardized definitions and methodologies for calculating companies’ medical loss ratios.

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