A new healthcare regulation released today by the Obama administration is drawing praise from congressional Democrats, who say it will benefit customers and boost industry transparency.
Under new rules being put forth by the Department of Health and Human Services, individual and small-group insurers will be subject next year to “Medical Loss Ratios” that will require them to spend 80-85% of revenue generated through premiums on actual health care. Currently, some insurance companies spend as much as 50% of that money on executive pay, marketing and administrative costs.
“This action…breaks the stranglehold insurance companies have had over our health care decisions and puts power into the hands of the American people, where it belongs,” said House Speaker Nancy Pelosi (D-Calif.).
House Education and Labor Committee Chairman George Miller (D-Calif.) called the announcement “good news for millions of Americans who are overcharged for their health insurance premiums.”
Starting in 2011, insurers must report how they spend the premium dollars they collect. Failure to meet the 80-85% threshold would force them to reimburse their customers. HHS estimates that insurance holders could collectively receive as much $4.9 billion in rebates or lowered premiums under the new rules.
Critics of the requirement say it will discourage insurance providers from creating new programs to improve care. Yet, proponents say the rules will minimize waste within the broader healthcare sector.
“In today’s market, too many insurers charge high premiums and yet spend 30 percent or more on administrative costs, high salaries, and profits,” said House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.). “The American public deserves to know what happens to their premium dollars, and they deserve to have those dollars devoted to providing health care services.”
The announcement comes just one month after a group of state insurance commissioners submitted a series of recommendations regarding MLRs to HHS Secretary Kathleen Sebelius.