06 June 2013
Who would have thought a childhood lesson in the cereal aisle would translate to saving on health insurance in 2014? "Don't buy name brand. That money goes toward commercials." Mom told me as a kid. Then she'd reach for a generic bag of "Fortuitous Marshmallows" or whatever cereal was hidden on the bottom shelf and ignore my pleas of "But I want the glow-in-the-dark spoon in Lucky Charms!" Her wise advice carried into my adult years when I feared my premium dollars would cover commercials more than my healthcare. After all, insurance companies have colorful mascots too: Geico's Gecko, Progressive's Flo, even Snoopy got sucked into Metlife's car commercials. How can I trust my money goes toward me and not some Cockney-accented reptile? Obamacare's 80/20 rule covers that.
In 2011 the Affordable Care Act (Obamacare) started the 80/20 rule also referred to as Medical Loss Ratio, a form of measurement that keeps insurers from overspending customer premiums on administrative costs, executive salaries, and advertisements. In other words, for every dollar a customer pays in health insurance premiums, 80 cents must go toward the customer's healthcare. Only 20 cents of that dollar can go toward overhead or the aforementioned expenditures. If an insurance company spends more than 20 cents of every premium dollar on a commercial, for example, it must refund the excess expenditures to its customers.
For individual and small business insurance, the 80/20 rule applies. For large businesses, even less of their premium dollars can go toward insurance company overhead. Instead the 85/15 rule applies. In the first year the 80/20 rule was enacted, Obamacare saved Americans $1.5 billion. Last year it doubled down on spendaholism on healthcare, saving Americans $3.4 billion.
Just who regulates the 80/20 rule? The Department of Health and Human Services along with insurance commissioners in each state require every insurance company report its expenditures on June 1st of each year. If a company breaks the 80/20 rule, it must send out rebates to customers beginning August 1st.
Since June 1st of 2013, reports show Anthem Blue Cross of California must return $12 million to customers. Blue Shield of California owes its customers over $24.5 million in rebates. While state insurance commissioners can enforce these rebates, California is one of the only states that doesn't have measures to prevent insurance companies from overcharging customers in the first place. As noted in a previous article about California, Insurance Commissioner Dave Jones introduced a measure that would grant state officials like himself the power to reject health insurance rate hikes. If it passes in 2014 this measure would save even more billions for consumers at the cost of less reptiles on our tv.