With the roll out of the Affordable Care Act, insurance companies need to spend 80% of their revenues on actual health care for their subscribers. The other 20% goes to overhead.
The 80/20 Rule generally requires insurance companies to spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs.
The 80/20 rule is sometimes known as Medical Loss Ratio, or MLR. If an insurance company uses 80 cents out of every premium dollar to pay for your medical claims and activities that improve the quality of care, the company has a Medical Loss Ratio of 80%.
Insurance companies selling to large groups (usually more than 50 employees) must spend at least 85% of premiums on care and quality improvement.
If your insurance company doesn’t meet these requirements, you’ll get a rebate on part of the premium that you paid.
I haven’t seen anything in any of the articles about the GOP’s American Health Care Act that talks about retaining this key cost saving portion of the Affordable Care Act. So I am assuming that it is history. So what will that do to future premiums in the market driven future envisioned by President Trump and Speaker Ryan? Given how we have gotten here over the past 60 years…I can’t imagine any good can come of it.