HHS Issues “Medical Loss Ratio” Rules Under Health Care Reform Law

The U.S. Health and Human Services Department issued new rules Monday implementing a major provision of the health care reform law requiring health insurance companies to spend significantly more of the premiums they take in on providing medical care rather than on salary and other overhead.

Under the “medical loss” ratio rules, 85 percent of the premiums collected by insurers of large employers will have to be devoted to providing care. For insurers of small employers, the figure is 80 percent.

Here are other highlights of the new rules:

  • health plans will have to disclose details about how they allot their money, calculate the portion of their spending that promotes good health and refund customers their money if they devote too much income to nonhealth purposes;
  • some spending to prevent fraud or review the necessity of medical treatments will be considered administrative and can’t count toward the medical cost;
  • “mini-med” plans, typically offered by low-wage employers such as McDonalds, which cap benefits at a low level, in 2011 may spend half as much of their premiums on medical care as most other insurers; the same goes for plans sold to Americans living overseas;
  • insurers may deduct their taxes from their total premium before they calculate the ratios.

The rules are effective as of Jan. 1, 2011, but the public will have 60 days to comment on them once they are published in the Federal Register. To read the rules in full, click on this link.

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