New York, NY, December 5, 2012Consumers saw nearly $1.5 billion in insurer rebates and overhead cost savings in 2011, due to the Affordable Care Act's medical loss ratio provision requiring health insurers to spend at least 80 percent of premium dollars on health care or quality improvement activities or pay a rebate to their customers, according to a new Commonwealth Fund report. Consumers with individual policies saw substantially reduced premiums when insurers reduced both administrative costs and profits to meet the new standards. While insurers in the small- and large-group markets achieved lower administrative costs, not all of these savings were passed on to employers and consumers, as many insurers increased profits in these markets.
"The medical loss ratio requirements are intended to give insurers an incentive to be more efficient and use most of their premium dollars for patient care," said Sara Collins, Commonwealth Fund Vice President for Affordable Health Insurance. "This report is encouraging, as it demonstrates that these new rules are improving value for people buying health insurance on their own, which has traditionally been very challenging. However, it will be crucial to monitor insurers' responses to this regulation over time to ensure that all purchasers and consumers benefit from the savings the law is designed to encourage."
The new report, Insurers' Responses to Regulation of Medical Loss Ratios, by Michael McCue of Virginia Commonwealth University and Mark Hall of Wake Forest University, looks at how insurers selling policies for individuals, small-employer groups (up to 100 workers), and large-employer groups (more than 50 or 100 workers, depending on the state) in every state reacted to the Affordable Care Act's medical loss ratio requirement between 2010, the year just before the new rule took effect, and 2011, the first year the rule was in place. The authors find that in the individual insurance market, improv
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