We have just reached a red letter moment in the area of medical insurance. The provision of the Affordable Care Act that requires medical insurers to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit just kicked in to effect. This provision of the law named “the medical loss ratio” will probably be one of the two most significant provisions of the entire law. The law requires that if the insurance company does not pay out the required ratio in benefits they will have to send rebate checks to their insured. Imagine that, a rebate check from your insurance company!

Some pundits believe that the “medical loss ration” provision will actually be the death knell for private insurers. These pundits do not believe that the insurers will be able to live within this profit ratio.

The Department of Health & Human Services (HHS) has just issued the rules of what insurer expenditures will—and will not—qualify as a medical expense for purposes of meeting the requirement. HHS has shown that they do not intend look the other way and give any latitude the insurance companies.

For a number of months, health insurance brokers and salespeople have been lobbying to have the commissions they earn for selling an insurer’s program to consumers be included as a ‘medical expense’ for purposes of the rules. HHS has determined that selling commissions are not medical expenses but are over head and do not qualify to be calculated within the 80% ratio.

Like other insurance companies health insurers make a profit not only by the premium dollars received, but also by their investing the premium dollars they receive. Of course, with the stock market being as volatile as it has been the insurance companies will either have to get out of the business or learn how to better manage their overhead expenses.

Will this provision push us closer to having a single payer (the government) or just have leaner private insurance companies is unclear. Time will tell.

Joel T Nowak, M.A., M.S.W.