Consumer Protections & Paying for Health Insurance and the Affordable Care Act
One of the most significant changes implemented by the Affordable Care Act is the requirement that insurance companies spend consumers’ premium dollars primarily on health care. Specifically, the law requires insurers to spend at least 80% (85% if selling to large groups of 50 or more employees) of premiums on direct medical care and efforts to improve the quality of care. As stated on the federal government’s website explaining the Affordable Care Act, Healthcare.gov, this Medical Loss Ratio is “A basic financial measurement used in the Affordable Care Act to encourage health plans to provide value to enrollees. If an insurer uses 80 cents out of every premium dollar to pay its customers' medical claims and activities that improve the quality of care, the company has a medical loss ratio of 80%. A medical loss ratio of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions.” If an individual’s insurance company exceeds the set Medical Loss Ratio, then the insurance company must provide a rebate of the portion premium dollars that exceeded the limit.
Implementation of this part of the law began in 2011, when insurers were first required to submit yearly reports to the Secretary of Health and Human Services on the share of premium dollars spent on health care services and quality improvement and any rebates required.
The Affordable Health Care act also prohibits the common annual and lifetime dollar limits used by many health plans. An annual limit is the dollar limit on a health insurer’s yearly spending for a consumer’s covered benefits. Under the Affordable Care Act, annual dollar limits are now restricted on all job-related and individual health plans issued after March 23, 2010, and will eventually be phased out completely, as no annual dollar limits are allowed on most covered benefits beginning January 1, 2014.
A lifetime limit is a dollar limit on what an insurance company would spend for a consumer’s covered benefits during the entire time the consumer was enrolled in that plan. The consumer was required to pay the cost of all care exceeding those limits. However, the Affordable Care Act prohibits lifetime limits on most benefits in any health plan or insurance policy issued or renewed on or after September 23, 2010.
The Affordable Care Act also creates a valuable tool, the Rate Review Program. The Rate Review Program protects individuals and small businesses from unreasonable health insurance rate increases by requiring health insurers to justify any rate increase of 10% or more before the increase takes effect. Find rate increase information for your state at the HealthCare.gov Rate Review Tool.
When a health insurance company submits their reason for raising rates by 10% or more to the consumer’s state or federal Rate Review program, the program will determine if the raised rate is unreasonable. If the rate regulator finds the increase unreasonable or excessive, they can reject the increase.
Under the Affordable Care Act, employers, employees, and early retirees will have an easier time affording health insurance. The Act helps small business with fewer than 25 employees afford the cost of health insurance coverage by granting a small business tax credit of up to 35% (25% for non-profits) to offset the cost of the insurance. This credit will increase in 2014 to 50% (35% for non-profits).
Furthermore, if a company provides health insurance to retirees ages 55 to 64, it may be eligible for financial help through the Early Retiree Reinsurance Program (“ERRP”). Applicants who are approved to participate in the program receive reinsurance for the claims of high-cost retirees and their families. ERRP is a temporary program ending on January 1, 2014, when the full implementation of the Affordable Care Act begins, allowing early retirees and others to choose from a range of coverage options that will be available in new competitive private health insurance Exchanges. The Affordable Care Act provides for an easy-to-use website where consumers can compare health insurance coverage options and pick the coverage that works best for them. At HealthCare.gov, an individual can quickly and easily find more information on insurance options to fit their needs. By simply answering the brief questions in the Health Insurance Finder, an individual will be able to retrieve personalized insurance suggestions in less than a minute. Watch a brief and informative tutorial on how to use this consumer-friendly website and survey.