The Patient Protection and Affordable Care Act (ACA) established federal criteria for minimum medical loss ratios, which are most generally referred to as “the insurance 80/20 rule.”
Those insurers that are subject to the regulation are required to meet or exceed a medical loss ratio of 80% in the individual and small group markets and 85% in the large group market respectively.
In other words, if you have a plan purchased via the individual market, at least 80 percent of the monthly premiums you pay must be spent on real medical treatment rather than on administrative costs, marketing costs, profits, and other overhead costs.
The law does not apply to the most prevalent kind of employer plan, which is called a “self-insured” plan. Under this kind of plan, companies receive the premiums from their employees and either pay the enrollees’ medical claims directly or do so via an administrator.
The majority of people are used to having a basic 80/20 coinsurance coverage, which states that you are responsible for paying 20 percent of your medical bills and that your health insurance would manage the remaining 80 percent of your medical expenses. After you’ve met your deductible, this is the amount of your coinsurance.
According to the insurance 80/20 Rule, insurance companies are required to spend at least 80 percent of the money they receive from premiums on initiatives that enhance the quality of treatment as well as the costs of providing medical services. The remaining twenty percent may be allocated to cover administrative, overhead, or marketing expenses.
The latest data that were issued by the Department of Health and Human Services reveal the exact amount of money that this regulation has saved customers over the course of the last several years.
Americans are receiving large rebates?
In order to compensate for the shortfall, insurance firms that do not reach or surpass the 80 percent (or 85 percent) criteria are required to issue refunds to the participants of their policies. Since the insurance 80/20 rule was implemented in 2011, individual plan enrollees and employer plan participants have earned or will receive a total of more than $1.9 billion in refunds combined.
In just this one year, 6.8 million customers all around the United States will receive a total of more than $330 million in refunds, with an average payout of $80 per household.
They are also required to pay less rates.
Although refunds serve as a stopgap measure to ensure that consumers receive the required value for the premium dollars they pay, consumers are also saving money up front as a result of the insurance 80/20 rule and other health care reforms, which are causing insurance companies to charge lower premiums and operate more efficiently. This allows consumers to save more money overall.
In point of fact, if the insurance 80/20 rule and other other changes hadn’t been implemented, customers’ premiums probably would have increased by an estimated $9 billion since 2011.
Insurance firms are more efficient because of the Insurance 80/20 Rule
Look at how much money insurance firms spend on things other than paying out medical claims and engaging in quality improvement initiatives. This is another another method for determining whether or not customers are getting their money’s worth.
The fact that customers are getting a better return on their premium dollars is a direct result of the fact that a lesser amount of premium dollars are being allocated to administrative expenses and profit.
The percentage of premium dollars that are going toward administrative expenses and profit has decreased across all markets ever since the introduction of the insurance 80/20 rule. The individual market has seen the greatest decrease, with earnings and overhead expenditure as a percentage of premiums falling from 15.3 percent in 2011 to 11.7 percent in 2013.
To state this as simply as possible: The Affordable Care Act, and the insurance 80/20 rule in particular, is helping to reduce the cost of healthcare for American citizens.