Health Care Reform- Insurance Rates

The Affordable Care Act (ACA) requires that insurance companies spend a minimum of the premium received to pay claims. This dictates the manner in which insurance companies set health insurance premiums. Should there be more oversight?

Insurance companies must spend a minimum of 80% of the premium collected on claims for individual, family and small group plans which are defined as having less than 51 employees. If a group has 51 employees or more, 85% of the premium must be spent on claims. The concept is called a Medical Loss Ratio or MLR.

If an insurance company spends less than the MLR (80% or 85%) money has to be rebated to the insured. You may have already received a rebate check from  your insurance company as this is required by the ACA. If an insurance company spends more than the required amount they cannot charge you extra premium for your health insurance. Consider that if an insurance company has an MLR of100%. For every premium dollar received a dollar is paid in claims. It is an unprofitable situation for an insurance company, they have many other operating costs for which there is no longer any money.

An insurance company cannot overcharge you according to the MLR rules. The rule favors the consumer. If an insurance company has charged more than the rules allow the consumer is refunded money. If an insurance company has charged too little premium which resulted in higher than expected claims costs, the company cannot bill you for additional premiums. In the case where an insurance company has paid claims which exceed the MLR rule a rate increase would more than likely be necessary and the cycle of paying claims according to the MLR rules would continue.

There are those who want to give the Dave Jones, The Insurance Commissioner of the State of California, the ability to reject rate increases by health insurance companies. This would be accomplished through a ballot initiative. This might have been reasonable before the ACA and the associated MLR rules. In my opinion more oversight is unnecessary. Certifying signatures to place an initiative on a ballot to the end result of an election is a waste of taxpayer money. It might even cause some instability to a system that is new and potentially fragile.

Medicare Supplement Rates are not impacted by Health Care Reform.

 

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