Franken: Health insurer spending curbs a win for consumers

Stung by a shaky rollout, ongoing legal challenges and deep divisions over its merits, many Democrats on the campaign trail this year aren't talking much about the Affordable Care Act.

Sen. Al Franken is the rare Democrat who does sometimes highlight the role he played in crafting the health care law, especially a provision he authored requiring insurers to spend 80 percent of the premiums they collect on medical care and only 20 percent on administrative costs, including executive salaries.

The rule, known as the medical loss ratio, has its critics, although the nonpartisan Kaiser Family Foundation says it's delivered for consumers.

Kaiser reports the ratio has kept premiums from rising too quickly and estimates that the rule has saved consumers 7.5 percent on their premiums since taking effect.

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"Consumers may get a rebate if their insurers fail to meet these (medical loss ratio) requirements," said Cynthia Cox, the foundation's senior policy analyst. That creates an incentive for insurers to keep their rates low, she added.

Consumers have received nearly $2 billion in rebate checks since the rule took effect in 2011, the federal Department of Health and Human Services reports. This year, 6.8 million consumers will get more than $330 million in refunds, with an average refund value of $80 per family.

The rule's biggest impact has come in the individual health insurance market. In 2011, just over 60 percent of policies purchased in that market met the minimum loss ratio requirements. By 2013, more than 80 percent of the policies complied with the rule.

Over time, rebate payments to consumers have gone down, which is a sign the law is working, Cox said.

"That's sort of the ironic part of this legislation," she said. "When it's working, people don't necessarily get a rebate because it means insurers were in compliance with the rule."

While it may be working for buyers, critics worry it may cause long term problems for insurers.

The companies are required to maintain cash reserves in case they have an unusually expensive year of claims and by limiting overhead and profit, the medical loss ratio makes it harder for insurers to restock reserves after a bad year, said Robert Book with the consulting firm Health Systems Innovation Network.

"If it weren't for this rule, they could make it up in a good year," said Book, who's also done work for the conservative Heritage Foundation and American Action Forum. "This rule basically says you have to take the hit in the bad years and you can't make it up in the good years because you have to pay rebates."

The health insurance industry initially fought the medical loss ratio when Franken proposed it but these days appears resigned to life under the rule. Medical costs haven't been soaring like they were five years ago and have, in fact, slowed considerably in the past few years.

Still, the 80-20 rule "does nothing to address the real drivers of premium increases, which is the soaring cost of medical care," said Clare Krusing, communications director with the trade group, America's Health Insurance Plans.

Ultimately, while the insurance industry has gone through major changes as a result of the Affordable Care Act, companies still remain profitable.

The rule has forced the industry to become more efficient, just as the Affordable Care Act intended, said Franken.

"It's made insurance companies focus on, 'Gee, well, let's not spend this much on administrative costs, let's watch our marketing, let's watch our CEO salaries,'" he said.