Chances are you’ve heard of the Affordable Care Act – President Obama’s landmark health reform law that’s holding insurance companies accountable, lowering health care costs, giving Americans more freedom and control in their health care choices, and improving the quality of care.
One part of the act that you may not be as familiar with, however, is the “80/20 rule” – also known as the Medical Loss Ratio (MLR) rule – which went into effect in 2011.
The rule generally requires health insurance companies in the individual and small group markets to spend at least 80% of the premium dollars they collect on medical care or activities to improve health care quality. And that increases to 85% for insurance companies in the large group market.
Today, the Department of Health and Human Services released some new numbers showing just how much this rule has saved consumers over the last few years.
Insurance companies that don’t meet or exceed the 80% (or 85%) standard have to pay their enrollees refunds to make up the difference. Since the 80/20 rule went into effect in 2011, individual and employer plan enrollees have received, or will receive, more than $1.9 billion in refunds.
This year alone, 6.8 million consumers across the country will get more than $330 million in refunds, with an average refund of $80 per family.
While refunds serve as a stopgap measure to ensure that consumers receive the required value for their premium dollars, consumers are also saving money upfront because insurance companies are charging lower premiums and operating more efficiently under the 80/20 rule and other health care reforms.
In fact, without the 80/20 rule and other reforms, consumers would have likely paid an estimated $9 billion more in premiums since 2011.
That’s right. $9 billion.
Another way to measure the value for consumers is to look at how insurance companies are spending money on expenses other than medical claims and quality improvement activities. A smaller portion of premium dollars directed to administrative costs and profit means that consumers are receiving a higher return on their premium dollars.
Since the 80/20 rule was introduced, the percent of premium dollars going toward administrative costs and profit has dropped in all markets. The largest decline is in the individual market, where profits and overhead spending as a percent of premium dropped from 15.3% in 2011 to 11.7% in 2013.
To put it very plainly: The Affordable Care Act – and the 80/20 rule in particular – is saving Americans money.