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Insurance and Uninsured

Friday, February 10, 2012

Calif. OKs Rule Making Insurers Spend More of Premiums on Care

The state Office of Administrative Law has made permanent an emergency regulation issued by Insurance Commissioner Dave Jones' (D) last year that requires health insurers to put at least 80% of premiums collected from individual policyholders toward the cost of medical care, Insurance Journal reports (Insurance Journal, 2/9).

Background

Under the medical-loss ratio rule included in the federal health reform law, private insurers are required to spend at least 80% in the individual market or 85% in the group market of their premium dollars on direct medical costs (California Healthline, 11/23/11).  

Insurers that do not comply with the ratio will have to issue rebates to consumers the following year (Insurance Journal, 2/9).

The reform law allows states to request adjustments if they can prove that enacting the new limits would immediately destabilize the state's insurance market (California Healthline, 11/23/11).

Details of the Emergency Regulation

Jones' regulation differs from the federal provision. It applies the 80% standard immediately after a rate is filed with the Department of Insurance instead of after policyholders pay the entire year's premium (Insurance Journal, 2/9).

Jones said in a statement, "Ensuring that more of consumers' premium dollars go into actual medical care -- and not into insurance industry profits and administrative costs -- is one of the most important components of federal health care reform" (CDI release, 2/9).

Reader Comments:
  • 3
  • 03/01/2012
  • Paul Rosenberger

This is just the latest California regulation to follow up the Federal legislation that has a sole purpose of reducing the profit available to Insurance companies. This regulation simply means that Insurance companies can only use 20% of their insurance premium income to pay for all of their operational expenses such as payroll,commissions,and internal operations cost!
What this means to the consumer is that premium prices must go up to keep the Insurance companies in business, and personnel must be let go, because how many companies with large operating and personnel expenses can stay in business with only a 20% margin????

The government is doing this to squeeze all insurance companies except strictly HMO companies out of business, and the loser as always are the citizens of this country who can hardly afford premiums now. This is what you get with BIG GOVERNMENT who is only concerned about Power and Control, and not the healthcare of its citizens.

  • 2
  • 02/10/2012
  • James Knight

Drives the market further into capitated care. Collect for prepaid 1st dollar coverage then send 80% of the $$$ to capitated groups and let them take the risk. Why sell traditional insurance that puts an insurer at risk where the upside is limited and the downside isn't?
Tidy proft for a middlemen that simply pass on the risk.

  • 1
  • 02/10/2012
  • James Roache PharmD

One must ask how putting more premium dollars into "actual medical care" gets done? Does it mean providers will now be paid a fair rate i.e. greater than their actual costs now "reimbursed" for the products and services they provide? Or, will the insureds receive more services that would not ordinarily make it through the "pre-auth" process if this regulation were not in place? Will their out of pockets expense such as deductibles or co-pays and share of cost be reduced? Will drug formularies be expanded to actually pay for appropriate drug therapy? Will cognitive services such as Medication Therapy Management now be paid for? Or now mean more funds available to pay for the layers of "administrative costs" to provide care through the myriad of health plans, MSO's, IPA's etc before actually paying providers for the products and services provided? Recall that this industry, for this intent, has remained unregulated until now. The industry itself justifies this welcomed oversight process.



Readers are invited to send feedback to: chl@chcf.org

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