Insurance companies will have to spend 80 to 85 percent of consumers’ premiums on direct patient care or send a rebate if they don’t, under long-awaited rules issued today that were passed as part of the Obama administration’s health care law.The 308 pages of regulations on what is known as the “medical loss ratio” may be technical, but Health and Human Services Secretary Kathleen Sebelius called them “an important step to hold insurance companies accountable and increase value for consumers.”
Health plans now spend as little as 60 percent of premium dollars on medical care. A big chunk goes for administrative costs such as marketing, lobbying, executive salaries and other non-health-related overhead.
The new regulations, which take effect in January and will require companies to issue annual reports to HHS, require companies to spend at least 80 percent of premiums delivering health care to consumers. In employer plans that cover more than 50 people, insurers would have to spend 85 cents of every premium dollar on medical care and efforts to improve health care quality.
Companies that fail to meet those guidelines will have to provide rebates to customers starting in 2012. HHS said as many as 9 million Americans could get rebates worth up to $1.4 billion, with the average rebate totaling $164 for those without employer-provided health plans.
The rules were developed with the National Association of Insurance Commissioners, which represents state insurance regulators.
Insurance companies and opponents of health care reform had balked at the new regulations, saying they would drive insurers out of business and would hurt efforts to prevent fraud. But the new rules, which Sebelius said were written under “enormous pressure,” address some of the insurance industry’s concerns, including allowing companies to include the cost of federal taxes in determining whether they are spending enough on patient care.