BEYOND THE NUMBERS
Nearly 13 million people recently received more than $1 billion in rebates on their health insurance premiums due to a health reform provision known as the “80/20 rule” or the “medical-loss ratio” standard. The rule requires insurance companies to spend at least 80 percent (or 85 percent in the case of large employer coverage) of what they collect in premiums on medical care and improving health care quality rather than for profits and overhead. If an insurer fails to meet the threshold, it must pay back the difference to individuals and employers. The 80/20 rule thus encourages insurers to be more efficient and ensures that individuals and employers that buy health insurance get the best bang for their buck.
A bill that the House Energy and Commerce Committee’s Health Subcommittee approved last week and that the full Committee is expected to consider this week would seriously weaken this critical rule. Under H.R. 1206, insurers wouldn’t have to count the commissions they pay to agents and brokers as part of their overhead. Insurers could spend more of the premium on costs that don’t affect patients’ health or medical care, including greater profits, so consumers would be paying more for less value in their health insurance.
The rebates that consumers just received show that some insurers have spent too much on administrative costs such as salaries and marketing, rather than on providing medical care and improving health care quality, or that they charged overly high premiums. More than a third of consumers in the individual market in 2011 were insured by a company that did not provide the required value for their premium dollars, according to the U.S. Department of Health and Human Services.
The average rebate was $151 per family across all markets; in some states, average rebates by market topped $500 per family. Insurers haven’t paid all rebates in the form of checks, though; some consumers may have received them as a cut in future premiums, or their employer may have provided a “premium holiday” or enhanced their insurance benefits. Regardless of how insurers pay the rebates, H.R. 1206 would likely reduce or eliminate how much consumers receive under the 80/20 rule.
Families and businesses should be assured that the money they spend on their health insurance coverage delivers good value. The 80/20 rule is a critical protection that policymakers should not weaken.