We all want value for the dollar when we make a big purchase. Especially when we buy something expensive, we want to know that we’re getting a high-quality product that makes a hit to the bank account worth it. When it comes to health insurance, it can be hard to know if you’re getting a good deal. Health plans can come with pages of fine print and endless caveats.
The Affordable Care Act takes many steps to unlock the black box of health insurance, including a “medical loss ratio” or “MLR” standard. The MLR is an easy-to-understand measure that tells you how much of your premium dollars your health insurance company spends on actual medical care and improving quality, and how much it instead uses for administrative costs, such as marketing and salaries, or profits. Under the new health care law, if a health plan is sold to a small employer or directly to an individual or family, the insurance company must spend at least 80 percent of premiums on medical care and quality improvement. For health plans sold to large companies, the MLR standard is 85 percent. If insurance companies miss these targets, they will owe rebates – estimated to total nearly $2 billion dollars in 2012 – to their customers.
These MLR standards represent a critical new protection for health plan enrollees, who often struggle to afford coverage. By August 1 each year, if you or your family directly purchased a health plan that failed to meet the MLR standards during the previous year, that plan must give you a rebate check, a refund to your credit card account, or a notice of how your future premiums will be decreased to account for the rebate. If you get coverage through your job and your health plan missed the targets for the previous year, by August 1, it must deliver a rebate to your employer, who will then have to use the employee share to benefit workers. These Affordable Care Act standards set an unprecedented level of accountability for insurance companies, requiring them to spend our money wisely or pay us back.
On Thursday, February 16, the US Department of Health and Human Services (HHS) released drafts of new forms that health plans will have to deliver to customers to show that they’ve either met the MLR standards or that they’ve missed their targets and will be paying rebates. Along with any rebates they owe, by August 1 every year, insurance companies must provide these easy-to-read notices so consumers and employers know if insurance companies are spending their premiums fairly.
Due to the Affordable Care Act’s new medical loss ratio requirements, insurance companies now have to be open and honest about how they are spending our premium dollars. Consumers and employers can finally know if they’re getting a fair deal for their money, and if not, their insurance company will have to make it up to them. The MLR standards and other transparency measures in the Affordable Care Act will open the black box of health insurance, requiring plans to compete on quality and value if they want our business.