The provision, known as the MLR, or “80/20 Rule”, requires insurers to spend at least 80% of health insurance premiums on actual medical care and quality improvement efforts. The rest may go toward administration, pay, marketing and profits. If a company spends too much on the wrong things, they must give the money back.
The $884-billion-a-year health insurance industry is still recording strong profits despite the 80/20 rule.
The Kaiser report details how much insurers must give back in the first year since the provision took effect in January 2011.
In the individual market, where consumers buy their plans directly from insurance companies, nationwide rebates of $426 million are expected. In the small-group market, mostly made up of smaller to medium-sized businesses, rebates will be $377 million. In the large group market, covering employees of large companies, consumers and businesses will reclaim $541 million.
One of the ironies of this development is that the states leading the charge to argue that the U.S. Supreme Court should overturn the Affordable Care Act are the states that will receive the largest rebates, according to calculations made by Think Progress.
These rebates are some of the first benefits of Obamacare that many people will feel directly. Not everyone gets a rebate. Some states had provisions that predated the ACA, and insurers there were already in compliance. Others sought to stay within compliance during the first year of implementation.
There are other benefits of the rule, too, according to the Kaiser report:
The presence of these thresholds and the corresponding rebate requirement have provided an incentive for insurers to seek lower premium increases than they would have otherwise, and in some cases premiums have even decreased. This “sentinel” effect on premiums has likely produced more savings for consumers and employers than the rebates themselves.
In some other places, state officials have attempted to get exemptions for insurers in their states, though the Department of Health and Human Services has been effective in denying many of these exemptions, including an egregious attempt by Florida Gov. Rick Scott to seek an exemption not once, but twice.
In a statement, HCAN executive director Ethan Rome said
This is a huge victory for consumers. For far too long, health insurance companies have been ripping off consumers, and Obamacare finally put a stop to that. The rebate money will come to consumers from insurance companies that spent too little on medical care and too much on profit, red tape and bloated CEO pay. These are concrete benefits and savings for consumers desperate for relief from crushing health insurance and medical costs.
Health insurance agents and brokers are in Washington this week fighting the Medical Loss Ratio rule, and AHIP, the health insurance company lobbying group, is fighting to put rebates back into the pockets of health insurance executives.
Congress needs to keep the 80/20 Rule: it is working for consumers.