Health Insurers Face New Federal Rules On Medical Spending

The Obama administration issued far-reaching rules Monday to carry out a controversial promise that the new health-care law makes to consumers: insurers must spend at least $4 out of $5 they collect through premiums on direct medical services and other means to improve Americans’ health.

Under the rules to take effect in January, the government will reach in novel ways into the workings of the insurance industry to try to drive down bureaucracy, profits and executives’ pay.

For the first time, health plans will have to disclose many details about how they allot their money, calculate the portion of their spending that promotes good health, and – if they devote too much income to the wrong purposes – give customers refunds.

In announcing the new standards for what are known in insurance jargon as “medical loss ratios,” Health and Human Services Secretary Kathleen Sebelius portrayed the rules as a “guarantee that consumers get the most out of their premium dollars.”

At the same time, the regulations make a few concessions to the insurance industry. The administration has given new and small health plans extra time to meet the standards. Insurers will be allowed to deduct most of their taxes before doing the math. And states may ask for federal permission to exempt from the rules health plans sold to individuals – a relatively small but expensive and shaky part of the insurance market – if they can prove that meeting the requirements would prompt such plans to stop doing business within the state.

The regulation is the kind of important fine print that will determine how the sprawling health-care law enacted by Congress eight months ago will play out in practice. The rules will affect about 180 million Americans with private insurance.

The regulations represent the first time the federal government has specified the proportion of insurance premiums that must be devoted to patients’ well-being. For the large groups of employees that make up most of the U.S. insurance market, at least 85 percent must go to coverage. For policies sold to individuals and small groups, the figure is at least 80 percent.

The administration’s decision also is a window on the tug of war that is certain to persist in coming years as constituencies with competing stakes jockey over myriad federal and state decisions that translate legislative language into reality.

The Washington Post

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