Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Health insurers: Pay more for medical care or give refunds

By Parija Kavilanz, senior writer


NEW YORK (CNNMoney.com) -- New rules issued to health insurers Monday mandate that they spend more on health care, and force them to refund consumers if they don't meet the requirements.

Beginning in 2011, insurance companies have to spend 80% to 85% of premiums on medical care instead of toward their own profits and overhead costs, according to the Department of Health and Human Services.

This spending allotment is known as the "medical loss ratio" and was a key provision of the health care reform law enacted by Congress in the spring.

If insurers don't meet the new rule for premium usage, then companies will be required to provide a rebate to their customers beginning in 2012, the agency said.

The agency estimates that as many as nine million Americans could be eligible for rebates in 2012, totaling $1.4 billion. Average rebates per person could total $164 in the individual insurance market.

Also beginning next year, the law will require insurance companies to publicly report details of how they spend premium dollars.

"These new rules are an important step to hold insurance companies accountable and increase value for consumers," HHS Secretary Kathleen Sebelius, said in a statement.

The insurance industry has pushed back against the Jan. 1 deadline on the new rules dictating premium allotment, and has been pushing for a phased-in approach to implement the rule through 2014.

Their concern is that many smaller insurers won't be able to meet the new standard by 2011, and could either exit the market or not take any new customers.

The consequence of not phasing in the change would be a "potential disruption of coverage for millions of Americans and reduced competition prior to 2014 market reforms," Karen Ignagni, president of America's Health Insurance Plans, wrote in a letter to state insurance commissioners last month.

Some insurers have also sought waivers from having to comply on Jan. 1. While individual insurers can't request waivers, states can apply for them on behalf of insurers, said HHS spokesman Steven Larsen.

Larsen said four states have already applied for an "adjustment" period for implementing the new rules. "They can ask for a one year adjustment or for a few years," he said.

Sebelius has the final word on granting those requests.

But the bottom line, Larsen said, is that by 2014 all insurers will have to meet the new requirements. To top of page

Index Last Change % Change
Dow 16,643.01 -11.76 -0.07%
Nasdaq 4,828.33 15.62 0.32%
S&P 500 1,988.87 1.21 0.06%
Treasuries 2.19 0.02 0.83%
Data as of 5:24am ET
Company Price Change % Change
Freeport-McMoRan Inc... 10.50 0.31 3.04%
Bank of America Corp... 16.36 -0.08 -0.49%
Apple Inc 113.29 0.37 0.33%
Intel Corp 28.42 0.70 2.53%
Alcoa Inc 9.41 0.55 6.21%
Data as of Aug 28
Sponsors

Sections

Efforts to unionize low-wage employees of fast-food franchisees and outside contractors get lift from decision of NLRB. More

After Hurricane Katrina, the city of New Orleans had to reinvent the way it manages water and protects itself from future storms. More

The market volatility in China and the U.S. could hit private companies, especially late-stage unicorns. More

How do you run a successful crowdfunding campaign? Indiegogo's CEO Slava Rubin offers his top tips and mistakes to avoid. More

Mom and pop investors are dumping their investments and moving to cash at levels not seen since the financial crisis of 2008. More