Insurance Protections for Consumers under Health Reform

For American families, adequate health insurance is extremely costly, and prices keep going up. In 2005, a family plan cost an average of $10,880 per year [1]; by 2011, the cost had risen to $15,073. [1] The large increases in health care costs have many families worried, and for good reason: one study projected that health care costs including premiums and out-of-pocket expenses will take up a full 50% of average family income in just six years. [2] If health costs keep increasing, health insurance will quickly become out of reach for all but the wealthiest Americans. The Affordable Care Act makes several important changes to better inform and protect consumers and to address these rapidly escalating costs.

First, the new law requires insurers to spend at least 80% of premiums on health care costs and on efforts to improve health care quality. (Large group plans have to spend 85% of premiums on health care costs.) Starting this year, insurance companies that spend less than the benchmark 80% of their premium income on medical care will have to send reimbursement checks to their customers. This is good news for consumers, who can be sure that the majority of their premiums are going to providing health care rather than advertising, administrative costs, etc. [3, see below]

Second, insurers now have to justify premium increases. If an insurance company is proposing an increase of over 10%, they will have to publicly explain why. Consumers will be able to review this information and offer feedback. Having this explanation publicly available will help consumers avoid plans that make excessive price hikes. The insurance company?s reason for the increase will be reviewed by a state or federal rate review agency. Where state laws allow for it, state review agencies will have the power to reject premium cost increases that are excessive and unjustified. [4]

Finally, insurance companies will also have to provide clear and consistent information about their plans to consumers. Insurers will have to prepare a Summary of Benefits and Coverage, which shares important information like which services are covered or excluded and how much deductibles and co-payments are. Each company will present this information in the same easy to understand format. This will make it much easier for consumers to compare plans and choose one that will best meet their needs. [5]

There is evidence that these reforms are effective at reducing costs. They are modeled on programs used in Massachusetts under Gov. Mitt Romney?s health reform plan. Before reform, group insurance premiums in Massachusetts were growing much faster than the national average (40% vs. 34.5% for 2002-2006). Massachusetts has actually reversed that trend, and between 2006 and 2010, group premiums for Massachusetts families grew 3% slower than the national average. [6] Even more striking, for individuals in Massachusetts without access to group coverage (e.g., the self-employed and employees of small businesses), premiums actually dropped by 40% between 2006 and 2009, while there was a 14% increase in the rest of the country. [7]

With these reforms, consumers are better protected than ever, and insurance companies are held accountable for appropriately spending their premium income, for not making excessive price hikes, and for providing clear, relevant information to consumers. These protections will help contain rising health costs and ensure appropriate health insurance is in reach for all American families.

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[1] Kaiser Family Foundation, Employer Health Benefits Survey 2011, http://ehbs.kff.org/pdf/2011/8225.pdf; Employer Health Benefits Survey 2005, http://ehbs.kff.org/pdf/2010/8085.pdf.

[2] http://articles.businessinsider.com/2012-03-15/news/31195624_1_insurance-premiums-health-insurance-care-spending; http://www.annfammed.org/content/10/2/156.full.pdf+html

[3] Some critics of health reform have claimed that the medical loss ratio requirement will drive insurance companies to bankruptcy, killing jobs and giving health care consumers fewer options. In reality, insurance companies will hardly go bankrupt. Most insurance companies are already meeting or close to meeting the 80% requirement, and they continue to make large profits every year. See http://www.gao.gov/new.items/d11711.pdf and ?http://www.forbes.com/sites/timworstall/2011/12/03/what-bomb-buried-in-obamacare/.

[4] http://www.healthcare.gov/law/features/costs/rate-review/

[5] http://www.healthcare.gov/news/factsheets/2011/08/labels08172011a.html

[6] http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-romneycare-is-working?-and-obamacare-might-be-too/2012/02/27/gIQAOoJedR_blog.html

[7] http://voices.washingtonpost.com/ezra-klein/2009/11/massachusetts_provides_evidenc.html

Tagged as: ACA, Affordable Care Act, Health Reform

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