Consumers 1, Insurance Companies 0
Did you know that insurance companies track the amount of money that they don’t spend on your medical care? They do this by calculating a “medical loss ratio”— the share of the premiums that health insurers collect every month that they put towards actual medical care. So where does the rest of the money go? It pays for a variety of things like administrative costs, overhead and, yes, lining the pockets of insurance company CEOs.
Some insurance companies spend as little as 60 cents of every premium dollar on health care. Yep, that means as much as 40 cents goes toward miscellaneous spending.
Consumer groups have been outraged about this for years. If you’re going to fork over your hard-earned money every month to make sure you have adequate health coverage, don’t you want to make sure your insurer is spending money on actual health care, not “administrative costs”?
Well, Congress decided to do something about that. To make sure that a reasonable share of your premium dollars actually goes towards medical care, the Patient Protection and Affordable Care Act sets minimum standards for the share of premium dollars that insurance companies must spend on health care and quality improvement efforts.
Insurance commissioners have spent the past six months debating recommendations for how these new standards should be implemented. Earlier this month, they came to an agreement, submitting robust recommendations for how the U.S. Department of Health and Human Services should implement the requirements. This is a huge victory for consumers.
It’s now up to the Secretary of Health and Human Services to review the recommendations from the National Association of Insurance Commissioners (NAIC), and based on them, issue regulations to begin enforcement of the new medical loss ratio requirements. If insurers fail to meet the minimum standards, they will have to issue a rebate to their customers.
Health and Human Services Secretary Kathleen Sebelius issued this statement regarding the recommendations from the NAIC:
These recommendations are reasonable, achievable for insurers, and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers. Not only do they ensure consumers receive better value for their health care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage as we transition to the new marketplace in 2014.
For far too long, insurance companies have gotten away with lining their pockets with our premium dollars, while paying less and less for actual medical care.
But thanks to the Affordable Care Act, insurers will finally be held accountable for how they spend our money.