Affordable Care Act Protecting Consumers from Premium Spikes

Health insurance premiums and gas prices have one thing in common –  they are both rising at a time when oil and insurance companies are earning record profits.

Most of us can figure out ways to cutback on our energy consumption to reduce our expenditures at the gas pump but cutting back on health care is a bit trickier.  We can’t very well stop our kids from getting sick and even if we could, it wouldn’t impact our premiums – insurers would just pocket the savings.  But that’s about to change. 

Consumers are entering an era when insurance companies will be held more accountable for meeting the needs of their policyholders.  Under the Affordable Care Act, health insurers will have to spend more money on care and less on profits and non-health expenses.   The new law will accomplish this by establishing a medical loss ratio of 85% for large group plans and 80% for individual and small-group plans. This means that if your health plan spends less than 80% of its revenue on health care, they’ll have to pay you a rebate.  Currently some plans have medical loss ratios as low as 55% according to Consumer Reports.  In other words, for every dollar they take in, they only spend 55 cents on health care, with the other 45 cents going to profits, administrative expenses and marketing.

Under the new law, HHS requires health insurance companies to submit their medical loss ratio reports by June 1 of each year.   Insurers will be required to make the first round of rebates to consumers by August 2012 based on their 2011 medical loss ratio.  An estimated 9 million people nationwide will be eligible for rebates starting in 2012, according to the U.S. Department of Health and Human Services. And a recent NAIC study estimates that, for the individual market alone, consumers will be entitled to close to $1 billion in rebates in just the first year.

As my colleague Sabrina Corlette with the Georgetown University Health Policy Institute has pointed out, going forward, this provision will give insurers an incentive to do a better job of pricing their products so consumers should see fewer premium increases and potentially even premium decreases as insurers adjust to avoid having to pay rebates.   In Connecticut, Aetna is doing just that with more than 15,000 policyholders likely to see their premiums cut by an average of 10% thanks to the ACA medical loss ratio rule. Consumers elsewhere may be in for a pleasant surprise during this fall’s open enrollment season as other insurers seek to adjust their rates to avoid having to pay rebates.

But of course, there are those trying to undermine this important consumer protection provided by the ACA.  A bill has been introduced in Congress to exempt broker fees from the medical loss ratio equation, meaning insurers would be required to spend less on health care.   Several states, including Florida, Georgia and Nevada are seeking waivers from the MLR rules.

All in all, consumers should see some relief from rising premium costs thanks to the Affordable Care Act.  I wish I had better news for you on holding oil companies more accountable to consumers.

Cathy Hope
Cathy Hope is the Communications Director at the Center for Children and Families