On Thursday, state insurance regulators finalized their recommendations on how to present a provision of the new health care law to the Obama administration. This provision works largely in favor of consumer advocates and could disappoint officials in the insurance industry.
Medical Loss Ratio Rules
The provision of health reform law is known as the Medical Loss Ratio rules and is being proposed by the National Association of Insurance Commissioners (NAIC). If approved, it will require health insurance companies to spend 80 to 85 percent of their collected premium dollars on medical claims or activities that improve the health of their customers, including:
- Increasing patient safety
- Investing in health information technology
- Preventing medical errors and hospital re-admissions
This means, the remaining 15 to 20 percent would be used for administrative costs and profits, a much lower percentage than companies had been said to use in the past.
Insurers Previously Confronted about Use of Premiums
In March 2010, the White House confronted health insurers because not only had they been increasing their premiums substantially, but allegedly using those increased dollars for their own gain.
A study released in Nov. 2009 by the Division of Health Care Finance and Policy in Massachusetts even found that private health insurance providers in that state had been making three to 12 times more in profits on student enrollees.
With so many questions arising in the insurance industry, the government added provisions to health care reform to help monitor just how much profit could be gained from premiums. Advocates hope these provisions will stick.
While the NAIC’s recommendations are not binding, Health and Human Services Secretary, Kathleen Sebelius, has said she will likely follow them closely. These adjustments could increase the likelihood that insurance companies have less to gain from increasing their premiums, while also ensuring that consumers actually get more bang for their buck.
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