A new report from the Commonwealth Foundation finds that Obamacare’s “medical loss ratio” provision — the so-called “80/20 rule” requiring insurers to spend at least 80 percent of every Americans’ premium costs on patient care, rather than on their own profits or overhead — has resulted in a total of $1.5 billion overhead savings and insurance rebates to Americans since its implementation in 2011.
As a press release from the Commonwealth Fund explains, those rebates mostly went to individual policyholders, who are now paying lower premiums since the requirement has forced insurers to reduce their overhead costs and profit margins:
The authors find that in the individual insurance market, improvements were widespread: 39 states saw administrative costs drop, 37 states saw medical loss ratios improve, and 34 states saw reductions in operating profits. Some states stood out for significant improvements. In New Mexico, Missouri, West Virginia, Texas, and South Carolina, medical loss ratios improved 10 percentage points or more, while administrative costs dropped $99 or more per member in Delaware, Ohio, Louisiana, South Carolina, and New York. [...]
The authors note that while insurers in the individual market have a less stringent medical loss ratio requirement—80 percent, as opposed to 85 percent in the large-group market—their traditionally higher overhead costs and lower medical loss ratios mean they have to work harder to reach the new standard. As a result, these insurers lowered both administrative costs and profit margins, therefore reducing growth in premiums.
While small- and large-group plan holders did not enjoy rebates to the same extent as their individual policy-holding counterparts, these larger plan providers still successfully lowered their overhead costs. And the study only addresses savings stemming from current policyholders over the course of the last year. As Obamacare is fully implemented in 2014 and states set up insurance exchanges where Americans may purchase individual coverage, an increasing number of people will benefit from the savings resulting from the 80/20 rule.
The Commonwealth study’s findings confirm earlier predictions about the cost-saving effect that Obamacare’s medical loss ratio provision would have on American consumers.