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Monday, Sept. 23, 2013

Understanding Obamacare: Insurance Companies Must Cut Overhead Costs and Profits

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Question: How does Obamacare require more accountability from insurance companies?

Answer: One of the major ways that Obamacare (the Affordable Care Act) requires more accountability from insurance companies is a provision known as the 80/20 rule, which went into effect right after the Affordable Care Act became law. So right now all insurance companies must spend 80-85% of premium dollars on actual health care costs. Not administrative costs or paperwork, not fancy offices, not profits, not CEO compensation, not insurer agent commissions—actual health care. And if an insurance company fails to do so, it must send a rebate back to the consumers it overcharged, either in the form of a check or lower premiums.

In Wisconsin, these rebates have been substantial. In the first year that the 80/20 rule was in effect, insurance companies sent more than $10.4 million in rebates back to Wisconsin consumers they overcharged. The most recent year saw insurers returning more than $3.5 million to consumers. Why the difference? Because we are seeing insurance companies changing their business practices and using our premium dollars more effectively.

The insurance system desperately needed this jolt. As more and more of our premium dollars were swallowed into administrative costs of companies and not into our treatments, costs were skyrocketing with little benefit to the consumer. Before the Affordable Care Act, the combination of overhead, greed and waste meant that 20 to 30 cents of every premium dollar went just to administrative costs.

But no longer, thanks to Obamacare. Insurance companies can’t suddenly raise your rates to excess without looking at the actual cost of health care, unless they come back to you with rebate check in hand.

This is just one of the benefits that you have now thanks to Obamacare, and even more security and control in the new health marketplace, healthcare.gov, after Oct. 1.

—Kevin Kane, Citizen Action of Wisconsin

The Shepherd Express and Citizen Action of Wisconsin will answer questions about the Affordable Care Act in weeks leading up to its implementation. Got a question? Email editor@shepex.com.