[Editor’s note: With significant portions of the Affordable Care Act to be implemented starting on Jan. 1, 2014, the Kokomo Tribune is running a series of stories exploring how the personal responsibility mandate, the expansion of Medicaid and the new health exchanges will affect consumers.]
Q: It’s my understanding that at one time health insurance companies kept as profit of 5 cents of every premium dollar and now put as much as 50 cents in their pocket as profit.
The Affordable Care Act will limit the amount insurance companies can put into their pockets to between 15 and 20 cents of every premium dollar, depending on the market. Furthermore, the insurance companies must justify any premium increases to regulators, rather than just arbitrarily increasing premiums because they feel like it.
If so, when do these rules take effect and where does the consumer report/question premium increases?
A: The Affordable Care Act addresses insurance premiums and justification of rate increases in an effort to reduce the cost of health care. The two provisions are designed to hold health insurance companies accountable to consumers and ensure American families receive true value for their premium dollars, Kathy Young, CEO of St. Joseph Hospital, said.
Young said these provisions are known as the 80/20 rule, also called the Medical Loss Ratio rule, and Rate Review.
“Under the 80/20 rule, insurance companies are required to report how much they spend on health care and how much they spend on administrative costs, such as salaries and marketing,” she said. “If an insurance company spends less than 80 percent of individual and small group premiums or less than 85 percent of large group (usually 50 employees or more) premiums on medical care and efforts to improve quality care, they must rebate a portion of the premium that exceeded this limit back to consumers.”
Rebates can be paid in four different ways: A rebate check in the mail; lump sum reimbursement to the account used to buy insurance; reduction in future premiums; or, if insurance is through your employer, the employer must use the rebate to benefit employees.