— by Kathleen Sebelius, Secretary of Health and Human Services
The Affordable Care Act (ACA) prohibits some of the worst insurance industry practices that have kept affordable health coverage out of reach for millions of Americans. It provides families and individuals with new protections against discriminatory rates due to pre-existing conditions, holds insurance companies accountable for how they spend your premium dollars, and prevents insurance companies from raising your insurance premium rates without accountability or transparency.
For more than a decade before the ACA health insurance premiums had risen rapidly, straining the pocketbooks of American families and businesses. Oftentimes, insurance companies were able to raise rates without explanation to consumers or public justification of their actions.
One of the provisions of the ACA is that insurance companies must now reveal the percentage of premium dollars they actually spend on health care and how much they spend on administration (e.g., salaries and marketing. Prior to ACA, this type of information was a closely held secret and insurance companies pocketed a good percentage of your premium dollars. With ACA in place, that’s no longer the case. If an insurance company spends less than 80% of premiums on medical care and quality (or less than 85% in the large employer, large group market), it must rebate the portion of premium dollars that exceeded this limit. This 80/20 rule is commonly known as the Medical Loss Ratio (MLR) rule
Rate Review in Action
The ACA brought an unprecedented level of scrutiny and transparency to health insurance rate increases by requiring insurance companies in every state to publicly justify their actions if they want to raise rates by 10% or more. Insurance companies are required to provide easy to understand information to their customers about their reasons for significant rate increases, and any unreasonable rate increases are posted online.
And it’s working. A new report released today shows that the health care law is helping to moderate premium hikes. Since this rule was implemented, the number of requests for insurance premium increases of 10% or more has dropped dramatically, from 75% to 14%. The average premium increase for all rates in 2012 was 30% below what it was in 2010. And available data suggest that this slowdown in rate increases has continued into 2013.
Moreover, when an insurer does decide to increase rates, consumers are seeing lower rate increases than what the insurers initially requested. In the review of rate requests for 10% or more, over 50% resulted in customers receiving either a lower rate increase than requested or no increase at all.
States have received $250 million in Health Insurance Rate Review Grants to help strengthen and improve their rate review processes thanks to the Affordable Care Act. Of the 44 states that received rate review grants, 40 have reported enhancements to their rate review websites. These website enhancements include searchable rate filings, new public comment options, live streaming of rate hearings, and plain language explanations of rate review and rate filings.
The Effective Rate Review program is one of many in the health care law aimed at protecting consumers. The rate review program works in conjunction with the 80/20 rule, which requires insurance companies to generally spend 80% of premiums on health care or provide rebates to their customers. Insurance companies that did not meet the 80/20 rule have provided nearly 13 million Americans with more than $1.1 billion in rebates. Americans receiving the rebate will benefit from an average rebate of $151 per household.
Additionally, today we issued a final rule that implements five key consumer protections from the Affordable Care Act, including protection against denial of health coverage because of a pre-existing condition. This rule makes the health insurance market work better for individuals, families and small businesses, and it also increases the transparency brought to rate increases by directing insurance companies in every state to file all of their rate increase requests.
For more information about the Affordable Care Act, visit http://www.healthcare.gov/index.html.
- Insurance Analysts: Obamacare to Increase Out-of-Pocket Premium Costs, Despite Lavish Subsidies (Forbes, 1/12/2013)
- Proof That Obamacare ‘Rate Shock’ Is An Ugly Insurance Company Deception (Forbes, 3/26/2013)
- Obamacare to Hike Some, Lower Other Individual Health Premiums: Sebelius (Insurance Journal, 3/27/2013)
- Some health insurance premium hikes reduced (Orange County Register, 3/7/2013)
- Insurance Companies Warn of Premium Hikes (Hispanic Business.com, 3/22/2013)
- The Hidden Cost of A Pre-Existing Condition Exclusion in the PPACA (Benefits@Work, 3/24/2013)
by Chris Stenrud, HHS Deputy Assistant Secretary for Public Affairs
For too long, too many hard working Americans paid the price for policies that handed free rein to insurance companies and put barriers between patients and their doctors. The Affordable Care Act gives families the security they deserve. The new health care law forces insurance companies to play by the rules, prohibiting them from dropping your coverage if you get sick, billing you into bankruptcy because of an annual or lifetime limit, or, soon, discriminating against anyone with a pre-existing condition.
The new law also includes a number of key provisions designed to help make health care more affordable – and help address the drivers of health care costs. The new health care law is already making a difference. Many Americans are seeing lower costs, and health care spending growth in 2009 and 2010 decreased to record lows.
Here are more ways the law helps control costs for families and small businesses:
- The law’s small business tax credit has lowered health insurance costs for small business owners. On average, small businesses have paid about 18 percent more than large firms for the same health insurance policy. If you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35 percent (up to 25 percent for non-profits) to offset the cost of your insurance. This will bring down the cost of providing insurance.
- Holding insurance companies accountable for how they spend your premium dollars. In 2011, if health insurers don’t spend at least 80 percent of your premium dollar on medical care and quality improvements rather than advertising, overhead and bonuses for executives, they will have to provide you a rebate for that excessive overhead. The first rebates will be made in the summer of 2012.
- Preventing insurance companies from raising rates with no accountability or transparency. In every State and for the first time ever, insurance companies are required to publicly justify their actions if they want to raise rates by 10 percent or more. These efforts are paying off. In the last quarter of 2011 alone, States reported that premium increases dropped by 4.5 percent. And, in States like Nevada, premiums actually declined.
- Recommended preventive benefits without deductibles or copayments.Millions of Americans with Medicare and private insurance have seen their out-pocket costs go down to zero for recommended preventive care like flu shots or cancer screenings now covered with no cost sharing under the law. This puts more money back into people’s pockets, while making sure they get the preventive care they need.
Find out why Mark, who owns a home-and-garden shop in downtown Ann Arbor, Michigan, says health care reform has helped him create more jobs in his community.
Learn more about how the Affordable Care Act is helping Americans: