Newly issued Medical Loss Ratio Standard requires insurance companies to spend at least 80 percent of consumers’ premium dollars on medical care

WASHINGTON - Rep. Edolphus “Ed” Towns (NY-10) praised regulations recently announced by the Department of Health and Human Services (HHS) that will provide important consumer protections to all Americans purchasing health insurance and ensure greater accountability in the health insurance industry. The HHS regulations issued last week, as required by the Affordable Care Act, require heath insurers to spend 80 to 85 percent of consumers’ premiums on direct care for patients and efforts to improve quality of care. If insurers fail to meet these minimum “medical loss ratios” they will be required to provide rebates to their customers beginning in 2012.

This new standard, that will go into effect on January 1, 2011 – with rebates beginning in 2012, ensures that consumers’ premium dollars are used to provide medical care rather than pay for executive compensation and marketing expenditures. The implementation of this provision also marks a new era of transparency in the health insurance market, as insurers will be required to publicly report on how their customers’ premium dollars are being spent.

“I am encouraged by this important measure that is yet another example of how the Affordable Care Act is improving the quality of care and value for consumers across the country,” said Rep. Towns

According to HHS, individual market plans that currently serve more than 20 percent of consumers spend more than 30 cents of every premium dollar on administrative costs.  An additional 25 percent of consumers are in plans that spend between 25 and 30 cents of every premium dollar on administrative costs. 

These new regulations are a product of months of discussion, inquiry, and careful analysis by the National Association of Insurance Commissioners (NAIC).  NAIC provided HHS with its recommendations on the medical loss ratio standard this fall.

“I commend HHS for its open and thorough approach to this process,” added Chairman Towns.

These important consumer protections are another example of how health reform is helping Americans prior to full implementation of the law in 2014.  Since health reform was enacted in March 2010, numerous provisions have taken effect, including:

• More than 1.8 million seniors who have fallen into the Medicare prescription drug ‘donut hole’ coverage gap have received a $250 rebate check to help pay for their prescription drugs.

• Beginning for tax year 2010, up to 4 million small businesses are eligible for small business tax credits to help pay for health insurance premiums for their employees if they choose to offer coverage.

• Nearly 3,600 employers are now participating in the Early Retiree Reinsurance Program, which is designed to retain early retiree health plans until full reform is implemented in 2014 by providing financial assistance for employer health plans offered to early retirees.

• Many Americans with pre-existing conditions now have access to federally-subsidized Pre-Existing Condition Plans, which exist in every state.

• Millions of Americans are now receiving the benefits of the Patient’s Bill of Rights, which went into effect for plan years beginning on or after September 23, 2010.  Among its many provisions, the Patient’s Bill of Rights:
            o Prohibits insurers from dropping people when they get sick.
            o Requires insurers to allow parents to keep their young adult children up to age 26 on their health plan as their children work to launch their careers.
            o Bans insurers from putting lifetime limits on coverage.
            o Bans insurers from denying coverage to children with pre-existing conditions; and
            o Requires insurers to cover key preventive services, such as mammograms and immunizations, without deductibles or co-payments.

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