Health plans must spend premiums on medical care

The Accountable Care Act requires that the lion's share of health insurance premiums pay for actual medical care — not insurers' overhead and profits.  Today rules that enforce that basic premise go into effect.

The regulation unveiled by the Health and Human Services department calls for insurance companies to spend at 4 out of every 5 premium dollars on medical care. For employer plans covering more than 50 people, the requirement is 85 cents. Insurers that fall short of the mark will have to issue their customers a rebate.  These rules apply to insured plans and not to the self-insured plans that many large employers offer.  Nevertheless, it is a major step toward reining in insurance company abuses. -- Washington Post

This new law has the potential to drastically improve the value that many Americans are receiving for their money. A Commonwealth Fund analysis found that, for some small employers, as much as 30 percent of premium payments go to administration, and some individuals see 40 percent of their payments spent on administration. Beginning in 2011, health plans will be required to report their total spending on medical care and activities to improve the health of their customers compared to their non-medical costs (i.e. marketing, advertising, underwriting, broker commissions, profits, and compensation). And the best part is that if your insurance company ends up spending too much of your money on things that don't improve your health, you can expect a check for the difference in the mail.

Check out the video below from Nancy-Ann DeParle, the White House Director of the Office of Health Reform, as she explains the new rule and why its important:

Video can also be found here.