The Commonwealth Fund has issued this issue brief on the impact of section 1001 of the Patient Protection and Affordable Care Act (ACA), which regulates the “medical loss ratio”, or the percentage of health insurance premiums that must be spent on medical expenses rather than administrative expenses and/or retained as profits. Under the ACA, this medical loss ratio must be at least 80% for health insurance companies in the individual and small group health insurance market and at least 85% for those in the large group health insurance market. According to the Centers for Medicare and Medicaid Services, dozens of national, regional, and local health insurance plans did not meet the minimum medical loss ratio in 2011 and had to refund nearly 12.8 million insured members over $1.1 billion in premiums collected which exceeded these ratios.
Of course, that means that those insurance companies now face lower operating budgets (and profits for shareholders). The issue brief describes how the insurance companies responded to this regulation and estimates that additional reductions in administrative expenses amounted to another $350 million in savings for health care consumers.