Senate’s Xmas present: Higher percentage of insurance premiums must go to pay medical costs

29Dec09

The bill passed by the Senate on December 24 keeps intact the immediately-effective consumer protections outlined in my first post on this blog and makes one of them stronger.

As initially proposed, the Senate bill required health insurers to file annual reports showing the percentage of total premium revenue spent on –

(a)      direct healthcare services for subscribers,

(b)      activities to improve healthcare quality, and

(c)      all other costs, except state taxes and licensing and regulatory fees.

The expenses described in (c) were subject to limits (expressed as a percentage of premium revenue) of 20% for group policies and 25% for individual policies.

Under the final bill passed by the Senate, however, these limits are reduced and applied slightly differently.  Now (assuming the conference committee adopts this provision unchanged), the limit for “other costs” will be 15% for policies in the large-group insurance market and 20% for those in the small-group and individual markets.

To the extent that actual “other costs” (that is, administration, overhead and profit) exceed these limits, the insurance company must provide an annual rebate to each enrollee, on a pro rata basis, in an amount that is equal to the amount by which premium revenue on such activities exceeds the cap.

As in the earlier bill, these requirements are effective for plan years beginning on or after the date that is 6 months after the date of enactment but a December 31, 2013 sunset date has been eliminated.  Instead, a new provision states that, starting January 1, 2014, the calculations will be based on a 3-year rolling average.



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