Does Obamacare restrict insurance companies’ profits?

“[The PPACA] takes steps to limit the boundless profiteering that has become customary in the U.S. health care system…

States have two new tools to prevent health plans from gouging consumers. First, 46 states have received grants from the US Department of Health and Human Services to investigate premium rate increases. This funding will give states the resources to review the complicated actuarial explanations filed by insurance companies and to judge whether premium increases are justified. In addition, plans will now be required to devote a minimum percentage of their premium revenue to medical care instead of administration, executive salaries, profits, lobbying and administrative waste. Plans will owe their customers rebates if they fail to spend at least 80 percent (individual and small group) or 85 percent (large group) of premium dollars on medical expenses.”

“Under the law, starting in 2011, insurers will have to meet minimum medical loss ratios or else provide rebates to consumers based on the amount insurers’ spending falls below these minimums. PPACA [Patient Protection and Affordable Care Act] establishes a minimum loss ratio of 80% for the individual and small group health insurance segments, and 85% for the large group segment. The decision to establish minimum medical loss ratios at these levels was guided by the Congressional Budget Office’s determination that the majority of insurers were already providing benefits to their customers at or above these levels…”

“Another provision, effective Jan. 1 [of 2010], requires that a minimum percentage of premium dollars be spent on true medical costs related to patient care — not retained by insurers as profit or used to cover administrative expenses. Insurers must refund money to consumers if they do not meet the standards… The law requires insurers to spend a minimum percentage of premiums on health care services and ‘activities that improve health care quality’ for patients.

Insurers are eager to classify as many expenses as possible in these categories, so they can meet the new test and avoid paying rebates to policyholders. Thus, insurers are lobbying for a broad definition of quality improvement activities that would allow them to count spending on health information technology, nurse hot lines and efforts to prevent fraud. They also want to include the cost of reviewing care by doctors and hospitals, to determine if it was appropriate and followed clinical protocols…

Under the new law, insurers in the large group market are generally supposed to spend 85 percent of customers’ premiums on ‘clinical services’ and quality-enhancing activities. The minimum is 80 percent for coverage sold to individuals and small groups.”

“Health care reform will require that commercial insurers spend at least 85 cents out of every premium dollar on medical claims for its large-group policyholders. For small-group and individual policies, the figure is 80 cents.

The remaining 15 -20 cents of each premium dollar can be used to pay expenses that do not directly benefit customers — like payroll, advertising, overhead and profits.

To enforce this new health care spending requirement, which the industry refers to as the medical loss ratio, regulators are now trying to determine which costs should be classified as medical and which are administrative.

The new medical loss ratio requirements go into effect Jan. 1, 2011.”

“Beginning in January [2011], the Affordable Care Act requires individual and small group insurers to spend at least 80% and large group insurers to spend at least 85% of your premium dollars on direct medical care and efforts to improve the quality of care you receive – and rebate you the difference if they fall short. This will limit spending on overhead and salaries and bonuses paid to insurance company executives and provide new transparency into how your dollars are spent. Insurers will be required to publicly disclose their rates on a new national consumer website – HealthCare.gov.”