More Value For Your Dollar

It seems like health care costs just keep going up. If you’ve ever opened a letter from your insurer with news of premium hikes, or sat through a human resources meeting and heard that you’re going to have to pay hundreds more dollars next year for the same coverage you have now, you’ve faced this reality firsthand.

For years, Americans have watched their premiums rise more rapidly than their wages. Although these increases are partly due to rising medical costs and utilization of services, they are also due to rising insurance company administrative costs, including marketing and salaries of CEOs. These administrative costs contribute little or nothing to the care of patients and the health of consumers.

And so today, we’re issuing new rules generally referred to as “medical loss ratio.” Part of the Affordable Care Act, it requires insurance companies to spend 80-85% of your money on actual health care services and quality improvement activities---not on overhead.

Insurers will be required to begin tracking their spending in this fashion during 2011, and in 2012, how they do will be available to you in a public report. Any insurer that does NOT spend 80-85% on actual health care services and quality improvement activities will also have to give plan members a rebate based on their excess spending in administrative costs. 

Here’s an example of how this would work.  Today the average insurance plan for a family of four from a small employer costs $13,250 per year.  Under the new rules, insurers would have to spend between $10,600 and $13,250 of that premium on health care and quality.  In today’s market, some insurers report spending as little as 60% of premium dollars on care.  Under these rules, unless those plans change their spending habits, they would have to refund nearly $3500 to each family they insure. 

What does all this mean? The bottom line: more value for your health care dollar, and more transparency about how insurance companies conduct business. If you’re working hard to ensure that you and your family have health insurance coverage, despite it being expensive, you have a right to know what your money is actually paying for---and this regulation makes that possible.

You can learn more about “medical loss ratio” rules here or here.