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Saturday, January 1st 2011

Health Care Reform & The New Year

The healthcare reform law comes into effect piecemeal, as the provisions of so many laws do. Today, the first of 2011, marks the coming of age of new provisions. The most notable of first may be a national medical loss ratio cap.

Today , many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing.

Thanks to the Affordable Care Act, consumers will receive more value for their premium dollar because insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs, starting in 2011. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.


Over 20 percent of consumers who purchase coverage in the individual market today are in plans that spend more than 30 cents of every premium dollar on administrative costs. An additional 25 percent of consumers in this market are in plans that spend between 25 and 30 cents of every premium dollar on administrative costs. And in some extreme cases, insurance plans spend more than 50 percent of every premium dollar on administrative costs. This regulation will help consumers get good value for their health insurance premium dollar.

Essentially the law requires 80% of premiums coming from individual plans to go to actual policyholder health care costs. For those in large employer based plans the law requires an even higher medical loss ratio of 85%. Dollars falling short of that must be given back to policy holders.

The law allows for the various states to ask for a waiver to individualize their medical loss ratio requirements. So far only Maine has done so.

MegaLife…threatened to leave Maine if the new loss ratio is imposed.

“Based on preliminary discussions I had with [MegaLife],” Kofman wrote in her July letter, “the company … would probably need to withdraw from this market if the minimum loss ratio requirement were increased.”


In November, Sen. Olympia Snowe added her support to Kofman’s waiver request, reiterating the concern about losing what little competition exists for Maine’s individual insurance market. Still, there has been no answer from Washington, D.C. Snowe could not be reached Friday for comment.

To be fair a lot of states require certain medical loss ratios already, but few at levels like the Affordable Care Act requires. I’m not sure how tenable the medical loss ratio requirement will be at 80-85% if the individual health insurance mandate doesn’t survive come 2014.

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We All Know How I Feel About Reform, And The Medical Loss Ratio Requirements In Particular

There are other new provisions coming into force. Maybe none as significant as the national, standardized restrictions on what health insurers can spend their revenue on but important none the less. You can look over some of the other provisions here.