Insurers are spending more of our dollars on actual health care

at 10:17 AM ET, 04/26/2012

One of the first health reform provisions to go into effect was a rule that insurers spend at least 80 percent of every premium dollar on medical costs, known in insurance jargon as the “medical loss ratio.” If health plans didn’t meet that target, they had to pay the difference back as a rebate.
(Andrew Harrer - Bloomberg)

Today, we have a first look at how this provision has affected the industry. Health insurance companies will pay $1.3 billion in rebates for 2011, according to a new analysis from the Kaiser Family Foundation.

Some of the rebates are significant, especially in the individual market. There, about 31 percent of subscribers are expected to get some cash back, averaging out to about $127 per person. For large employer plans paying a rebate, the average amount is a lot smaller, just $14 per person. And the way it gets paid is trickier: The rebate goes to the purchaser of insurance (usually, the employer) who doesn’t always have to pass the savings on to employees.

What’s most interesting about the $1.3 billion figure though, is that there’s a smaller gap between what the government wants insurers to spend on medical care and what they actually spend than in previous years. A Senate report last year estimated that, had this new spending requirement been in place in 2010, it would have netted consumers about $2 billion in rebates.

Insurers aren’t squirreling away an extra $700 million somewhere. They’re doing what the federal government wants them to do: Spending that $700 million on medical costs. Obama administration officials have repeatedly emphasized that, in an ideal world, there would be no rebates, which get messy and administrative. Instead, they want to see all of that $1.3 billion put into medical costs. And, while insurers aren’t quite there yet, they do appear to be inching in that direction.

Read what others are saying

    Most Read: Business

     Last Update: 3:16 PM 05/20/2015(NASDAQ&DJIA)

    World Markets from      


    Other Market Data from      


    Key Rates from