As a result of the Affordable Care Act's Medical Loss Ratio or 80/20 rule, consumers nationwide will receive an average of $80 per family in rebates if they paid for health insurance in 2013, the U.S. Department of Health and Human Services announced Thursday.
The Affordable Care Act, also known as ACA or Obamacare, requires health insurers to spend at least 80 percent of premiums on paying for patient care and no more than 20 percent on administrative costs. The 20 percent includes overhead such as salaries and bonuses.
According to the government, insurers are gradually getting better at complying with the rule, but they owe 6.8 million consumers approximately $330 million nationwide this year. Consumers also pay lower rates than they otherwise would have, since insurers need to operate more efficiently in their attempts to follow the 80/20 rule. According to the government's 2014 Medical Loss Ratio report, "If insurance companies had maintained their 2011 ratios of premiums relative to the cost of medical care, consumers would likely have paid an estimated $3.8 billion in additional premiums in 2013."
The Medical Loss Ratio rule applies to insurance purchased by individuals or small groups, including many businesses through which employees buy coverage. The regulation doesn't affect the self-insured health plans common to large corporations.
Insurers must issue the rebates in the form of a mailed check, a deposit to the account used to pay the premiums or a reduction to future rates. If you paid for insurance through an employer, the business will receive the insurer's rebate check. It can then issue the amount to which you're entitled in one of the previously noted three ways or through by applying it to some other way that benefits employees, such as improved benefits.
Insurance companies must issue the rebates by August 1, 2014. However, not all insurers fell short on the 80/20 rule. Those that have already complied do not owe rebates to their customers.
In addition to the Medical Loss Ratio rule and its resulting rebates, insurers in the individual and small group markets also must justify annual rate increases of more than 10 percent through a rate review process. The government uses a set of "effective rate review standards" to determine whether to approve such increases in premiums.
Insurance companies also have to provide consumers with clear information about their reasoning behind significant rate increases, and they have to publicize their justification on their Web sites as well. Health and Human Services Secretary Sylvia M. Burwell said in a media release, “We are pleased that the Affordable Care Act continues to provide Americans better value for their premium dollars.”