Updated at 10:05 a.m. on November 22.
The Department of Health and Human Services today released long-awaited regulations governing how insurance companies can spend customer premiums.
The interim final rule on medical-loss ratio requires insurers to spend 80 percent to 85 of premium dollars on medical care, as opposed to administrative costs.
The regulations follow the National Association of Insurance Commissioners recommendations on deducting federal and state taxes from the medical loss ratio. It also allows "mini-med" plans to follow a different calculation formula than other plans in 2011.
“These new rules are an important step to hold insurance companies accountable and increase value for consumers,” HHS Secretary Kathleen Sebelius told reporters at a press conference this morning.
The new health care law requires insurers offering individual or group coverage to submit annual reports to HHS on the percentages of premiums that the coverage spends on reimbursement for clinical and quality improvement services.
If the spending does not meet minimum standards for a given plan year, then the companies have to pay a refund to policy holders beginning in 2012.
Sebelius said that the provision could affect 74.8 million insured Americans, with federal estimates indicting that up to 9 million of them could be eligible for rebates worth up to $1.4 billion. Average rebates per person could total $164 in the individual market.
Rebates in the individual market will go back to the policy holder, while rebates for employer-based coverage will go to the actual employers to be shared among covered workers.
The cost of insurance coverage has risen higher than average wages, Sebelius said, adding that in some instances, the level of quality has not kept pace. To be sure, always-rising health care costs have resulted in higher premiums, but the price tag also reflects “back office” expenses, like executive salaries, company profits, and lobbying efforts.
A family of four now spends $13,250 on average for health coverage. Prior to the health reform law, an insurer could spend “as little or as much of that money on health care and quality as it saw fit,” Sebelius said.
Now, insurers who cover small employers or those in the individual market have to spend 80 percent on health care, or just over $10,600 of the average family plan. If insured by a large group plan, the company would now spend at least $11,260, or 85 percent, on health care and quality.
“And that’s a much better return on a family’s investment,” Sebelius said.
As is, some insurers spend less than 60 percent of their premium dollars on care, she said.
So-called “mini-med” plans will get a one-year reprieve from the MLR requirements. In that year, HHS expects issuers of the limited-benefits plans to document and report cost and spending data to the department.
“No one’s going to lose their coverage, even though some don’t provide the most comprehensive coverage,” said Jay Angoff, director of the Office of Consumer Information and Insurance Oversight at HHS, about those who are covered under the limited-benefits plans.
Matthew DoBias contributed contributed to this article.
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