Healthcare Reform Stipulates That 80 Percent of Premiums Be Dedicated to Medical Services

Under healthcare reform law, insurers must spend 80 percent or more of premiums on medical services.  The nation’s insurance commissioners are mandating that healthcare plans spend a minimum of 80 percent of premium dollars on medical costs.  The requirement is a central principle of the new Patient Protection and Affordable Care Act.  The National Association of Insurance Commissioners, which writes laws governing the insurance industry, approved a proposed financial disclosure form that insurers must file starting in 2011.  Department of Health and Human Services Secretary Kathleen Sebelius will use the association’s recommendations for medical-loss ratio, which is the percentage of premiums that pay for medical services vs. administrative costs.

According to the new law, individual and group policies purchased by companies with 50 or fewer employees will be required to spend 80 percent of premiums on medical costs.  That rises to 85 percent for companies with more than 50 employees.  If the healthcare plan does not provide the required medical service, they must pay a rebate to their plan participants.

“Medical-loss ratios are important because they demonstrate to the employer or family that premium dollars are being used on healthcare,” said Michael McRaith, Illinois Department of Insurance Director.  The regulations affect healthcare plans that are monitored by the state and which will be the primary choice for uninsured once the insurance exchanges are operational in 2014.

The insurance industry wants the cost of exposing fraud and abuse to be covered by the 80 percent and not from administrative costs.  According to Robert Zirkelbach, a spokesman for the lobbying group America’s Health Insurance Plans, “Fraud and abuse have a direct impact on the quality and safety of patient care.”

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