Bigger Bang For The Buck

“Instead of spending consumers’ hard-earned dollars on executive salaries or advertising, health insurers will now be required to use those premium dollars on medical care for patients and efforts to improve that care.” – Sen. Brown

How about giving patients a choice in insurance?  We only need to have all of these regulations on insurance companies because patients can’t shop a free market in health insurance.  If I knew my insurance company’s execs were vacationing in Aruba for their annual board meeting while I was paying a higher premium, I’d switch carriers.  Done and done.  But my hands are tied.  I had trouble getting coverage because of state laws.  Open up health insurance across state lines and then watch what happens.  That would be great for everyone!  At least there is a free market for health care at 

From Sen. Brown’s webiste: (

WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH) released the following statement today after the U.S. Department of Health and Human Services (HHS) made an announcement regarding implementation of the new health care law.  This week, HHS announced that new health care provisions requiring health insurers to spend 80 to 85 percent of consumers’ premiums on direct care for patients—known as “medical loss ratio” requirements—would take effect starting in 2011.

 “This new provision will ensure that health care consumers in Ohio and across America get a bigger bang for their health care buck,” Brown said. “Instead of spending consumers’ hard-earned dollars on executive salaries or advertising, health insurers will now be required to use those premium dollars on medical care for patients and efforts to improve that care. It’s another way that the new health care law is giving consumers—and not insurers—the upper hand when it comes to health insurance.”

 According to HHS, many insurance companies today spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. Thanks to the new health care law, consumers will receive more value for their premium dollar because insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs, starting in 2011. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.

 In 2011, the new rules will protect up to 74.8 million insured Americans and estimates indicate that up to 9 million Americans could be eligible for rebates starting in 2012 worth up to $1.4 billion.  Average rebates per person could total $164 in the individual market. Important details regarding the new regulation are included below.

 Beginning in 2011, the new health care law will require insurance companies publicly report how they spend premium dollars, providing meaningful information to consumers. Also beginning in 2011, insurers are required to spend at least 80 percent of the premium dollars they collect on medical care and quality improvement activities.  Insurance companies that are not meeting the medical loss ratio standard will be required to provide rebates to their consumers.  Insurers will be required to make the first round of rebates to consumers in 2012.  The new health care law required the National Association of Insurance Commissioners (NAIC) to develop uniform definitions and methodologies for calculating insurance companies’ medical loss ratios.  This week’s regulation certifies and adopts the recommendations submitted to HHS on October 27, 2010 by the NAIC.

One response

Senator Brown doesn’t understand that the medical loss ratio concept interferes with the inner workings of a company and that is none of the government’s business. How on earth will the government know what the “correct” amount is to spend on executive pay, overhead and marketing? They can’t. Indeed some executives command huge salaries but such salaries may be needed to recruit the right person. It might require paying someone a salary of ten’s of millions of dollars to get the right person to control hundreds of millions of dollars of assets.
The oil companies are a good example. Cutting executive pay would drop the price of gas by pennies per gallon. On the other hand, you want executives that can bring gas and oil to market efficiently dropping overall costs to the consumer.
Furthermore an insurance company may want to implement a way to drop costs of insurance such as health savings accounts. But admin costs will likely stay about the same. The net effect is a rise in the medical loss ratio and yet the insurance and medical costs drop. The medical loss ratio impedes the implementation of such innovations.

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