Tuesday, November 23, 2010

Health-reform rules to cap insurance-firm profits; could indirectly help many rural policyholders

New federal rules will require U.S. health insurance companies to spend more on health care and its promotion and less on advertising, overhead, executive compensation and other non-care-related expenses. The change in what is known as the medical-loss ratio will take effect Jan. 1.

Part of the new federal health reform law, the rules are designed to maximize benefits to consumers. At the same time, they dramatically increase federal oversight of how health insurance companies spend the revenue they collect from policyholders. While some states already require similar medical-loss ratios, the new rules mark the first time the federal government has issued such regulations, notes Robert Pear of The New York Times.

Secretary of Health and Human Services Kathleen Sebelius said in a news release that the rules will protect nearly 75 million Americans and help ensure "better value for their health-insurance premium dollar." Insurers selling policies in the large-group market will have to spend at least 85 percent of premium dollars on health care or its promotion; those in the individual and small-group market will have an 80 percent minimum. An estimated 45 percent of people who buy individual health care plans buy them from companies that do not meet the new federal requirement. Insurance companies who don't comply will have to pay rebates to policyholders, beginning in 2012.

These changes could be significant for rural policyholders, whose choices of health insurance companies are often limited. Uniformity in provisions, how much of premiums must be spent on actual care, combined with prohibitions against using pre-existing conditions to exclude people from coverage, could make new policies more widely available. Disproportionately sicker rural residents would also likely realize improved care as health care policies become more uniform.

Some state officials have argued that the new rules could disrupt insurance markets in their states if some carriers opt out of the market and reduce competition. Federal officials can lower the standards for a time if consumers are likely to be harmed. Georgia, Iowa, Maine and South Carolina have asked for such adjustments. The new federal rules are based on recommendations from the National Association of Insurance Commissioners, an organization of the states' health insurance regulators. (Read more)

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