WASHINGTON — The Obama administration issued rules Monday defining a promise to consumers in the new federal health care law that insurers will spend at least $4 out of $5 they collect in premiums on medical services and other efforts to improve patients’ health.
The rules say that, starting in January, insurers must reveal far more information than required in the past about how they allot their money. The rule is intended to curb the proportion of their income that insurers devote to administrative costs, executives’ pay and profits.
The standards culminate months of heavy lobbying by the insurance industry, providers of health care and consumers over how stringent the government should be in defining which activities health plans may count as improving the quality of care.
In the end, the standards “guarantee that consumers get the most out of their premium dollars,” said Health and Human Services Secretary Kathleen Sebelius at a news conference. “While some level of administrative costs are certainly necessary, we believe they have gotten out of hand. That is going to change.”
Currently, there is no uniform requirement that health insurers spend a minimum share of premiums on medical care. Consumer groups say somewhere between 80 and 85 cents on the dollar represents good value, but many plans spend in the range of 60 to 80 cents.
Overall, the new requirement applies to plans that cover about 75 million people.
One major exception involves large-employer plans. Generally, major companies pay their employees’ health care expenses directly, hiring an insurance company to act as an outside administrator. To employees, it looks like they are covered by an insurer, but it is actually their company that’s paying. Because most big firms pay up front, they already have a strong incentive to be as efficient as possible.
The regulation is the kind of important fine print that will determine how the sprawling law enacted by Congress in March will play out in practice.
The Associated Press contributed to this report.
